Who Is Subject to the Investment Company Act of 1940

In 1935, Congress requested the SEC report on the industry and the study on investment funds between 1938 and 1940. [2] The law as originally presented was different from the law that was passed; The original bill gave more powers to the SEC, while the final bill was a compromise between the SEC and industry, drafted by joint SEC and industry members and submitted to Congress, and Congress eventually passed a similar version. [3] David Schenker, who became head of investment firms at the SEC,[4] was one of the original authors. [5] The Act also contains provisions for the transactions of certain related persons and insurers; Accounting; record-keeping requirements; examination requirements; how securities may be distributed, reclaimed and redeemed; changes in investment policy; and action for fraud or breach of fiduciary duty. This Investment Company Registration and Regulation Package (“Package”) contains general information about investment companies (e.g. investment funds, closed-end funds and investment funds) and replaces the “Investment Company Registration Package” previously distributed in printed form. Due to constant changes to federal securities laws, we no longer print the investment company registration file on paper. However, all the information that was included in the previous version is now available through hyperlinks to the websites listed below. In addition, SEC publications are available from the SEC Publications Office at (202) 551-4040.

(a) Management companies are normally structured as companies or trusts. The board of directors (or trustees) of a management company oversees the management of the company. See Section 2(a)(12) of the Investment Companies Act. The investment adviser of a management company (usually a separate entity registered with the Commission) manages the securities in the company`s portfolio for a fee. See Section 2(a)(20) of the Investment Companies Act. Article 3(c)(7) excludes from the definition of an investment vehicle any issuer whose outstanding securities are held exclusively by persons who are qualified purchasers at the time of acquisition of those securities and who, at that time, does not make and does not intend to make an offer of those securities to the public. The term “qualified buyer” is defined in section 2(a)(51) of the Investment Companies Act. Section 3(a)(1) of the Investment Companies Act defines an “investment company” within the meaning of the Federal Securities Act. Section 3(a)(1)(A) of the Investment Companies Act defines an investment company as an issuer whose principal activity is to invest, reinvest or deal in “securities” or which intends to deal primarily with them. See Section 2(a)(36) of the Investment Companies Act.

Section 3(a)(1)(C) of the Investment Companies Act defines an investment company as an issuer that invests, reinvests, holds, holds or intends to deal in securities and owns or intends to acquire “investment securities” worth more than 40% of the value of its total assets (excluding government securities and cash) on a non-consolidated basis. See Section 3(a)(2) of the Investment Companies Act. In addition to the exceptions in the definitions, section 6 describes other exceptions, with paragraph 6(c) specifically giving the SEC broad discretion to “exempt a person on condition or without conditions. of any provision”. [5] One of the original authors, David Schenker (who became head of the SEC`s investment companies division,[4] explained the provision in 1940, citing the complexity of the industry. [5] This provision was used in particular to exempt venture capital firms in the 1970s prior to legislative amendments, including section 3(c)(7) exempting issuers of non-public securities from qualified purchasers. [5] Section 3(c)(11) generally exempts collective trust funds. The Investment Company Act of 1940 – as well as the Investment Advisers Act of 1940 – was introduced in response to the Wall Street crash of 1929 and the Great Depression that followed. The objective of the Investment Companies Act was to enhance investor confidence in the then relatively new investment companies by reducing conflicts of interest. It should also protect the public interest by requiring investment firms to disclose material information about their financial health, structure, investment policy and objectives using Form N-SAR. This kit is provided for illustrative purposes only. It is not an exhaustive handbook on the regulation of investment firms, investment company service providers or affiliates.

This package is not intended to provide formal or binding legal advice to the Commission or staff and does not replace federal securities laws and the advice of legal counsel. If you intend to incorporate an investment company or have legal questions regarding the regulation of investment companies or similar companies, you should consult the applicable laws and regulations. You will also often need to consult interpretive guidelines (e.g., legislative history, Commission publications, and no-action letters). We also recommend that you consult a lawyer and auditor with experience under federal securities laws. This filing was prepared by SEC staff. The Commission has not commented on its content. Companies that invest or reinvest in companies should be aware of the law to avoid registering as an investment company. Many companies that accidentally become investment firms need to cease their current operations and realign their investment strategies. However, due to the number of exemptions available to issuers, companies must take advantage of this and modify their practices to avoid registration under the law. The Investment Company Act of 1940 is considered one of the most important regulations for the U.S. stock market and is a law passed by Congress to define and regulate mutual funds and closed-end funds, as well as hedge funds, private equity funds, and holding companies. It is enforced by the investment management division of the Securities and Exchange Commission (SEC) and is designed to “mitigate and eliminate conditions that adversely affect the national public interest and the interest of investors.” The following is a list of the most common forms used by issuers to register as investment companies under the Investment Companies Act and/or register their securities under the Securities Act: Subsection.