Investor's wiki



3C1 alludes to a portion of the Investment Company Act of 1940 that permits private investment companies to be viewed as exceptions to certain regulations and reporting requirements stipulated by the Securities and Exchange Commission (SEC). Notwithstanding, these firms must fulfill specific requirements to keep up with their exception status.

Understanding 3C1

3C1 is shorthand for the 3(c)(1) exemption found in section 3 of the Act. To completely comprehend section 3C1, we must initially survey the Act's definition of an investment company and how it connects with prior sections of the Act: 3(b)(1) and 3(c). An investment company, as defined by the Investment Company Act, are companies that fundamentally participate in the business of investing, reinvesting, or trading securities. Assuming companies are viewed as investment companies, they must comply to certain regulations and reporting requirements.


3(b)(1) was laid out to reject certain companies from being viewed as an investment company and complying with the subsequent regulations. Companies are exempt for however long they are not basically in that frame of mind of investing, reinvesting, holding, claiming, or trading in securities themselves, or through auxiliaries, or controlled companies.


3(c) makes it a stride further and frames specific exceptions to the classification of an investment company, which incorporate merchant dealers, pension plans, church plans, and charitable organizations.


3(c)(1) adds to the exceptions list in 3(c) refering to certain boundaries or requirements that, whenever fulfilled, would permit private investment companies to not be classified as investment companies under the Act.

3(c)(1) exempts the accompanying from definition of investment company:

"Any issuer whose outstanding securities (other than short-term paper) are valuably owned by not more than 100 persons (or on account of a qualifying venture capital fund, 250 persons) and that isn't making and doesn't as of now propose to make a public offering of such securities."

As such, 3C1 permits private funds with 100 or less investors (and venture capital funds with less than 250 investors) and no plans for a [initial public offering](/initial public offering) to sidestep SEC registration and different requirements, remembering continuous disclosure and limitations for derivatives trading. 3C1 funds are additionally alluded to as 3C1 companies or 3(c)(1) funds.

The aftereffect of 3C1 is that it permits hedge fund companies to keep away from the SEC examination that other investment funds, like mutual funds, must stick to under the Act. Be that as it may, the investors in 3C1 funds must be accredited investors, meaning investors who have an annual income of more than $200,000 or a net worth in excess of $1 million.

3C1 Funds versus 3C7 Funds

Private equity funds are typically structured as 3C1 funds or 3C7 funds, the last option being a reference to the 3(c)(7) exemption. Both 3C1 and 3C7 funds are exempt from SEC registration requirements under the Investment Company Act of 1940, yet the idea of the exemption is marginally unique. Though the 3C1 exemption depends on not surpassing 100 accredited investors, a 3C7 fund must keep a total of 2,000 or less qualified buyers. Be that as it may, qualified buyers must clear a higher bar and have more than $5 million in assets, yet a 3C7 fund is permitted to have a greater amount of these individuals or substances participating as investors.

3C1 Compliance Challenges

Albeit 100 accredited investors sound like a simple limit to monitor, it very well may be a difficult area for fund compliance. Private funds are generally protected on account of involuntary share transfers. For instance, the death of an investor brings about shares being split up among family individuals would be viewed as an involuntary transfer.

Nonetheless, these funds can run into issues with shares given as employment incentives. Learned employees, including executives, directors, and partners, don't count against the fund's count. Be that as it may, employees who leave the firm carrying the shares with them will count against the 100 investor limit. The 100 person limit is so critical to the investment company exemption and 3C1 status, that private funds put a great deal of exertion into verifying they are in compliance.


  • A firm that is defined as a investment company must meet specific regulatory and reporting requirements stipulated by the SEC.
  • 3C1 alludes to a portion of the Investment Company Act of 1940 that exempts certain private investment companies from regulations.
  • 3C1 permits private funds with 100 or less investors and no plans for an initial public offering to sidestep certain SEC requirements.