What is a 3(c)(1) Fund?
A private equity fund known as a 3(c)(1) Fund refers to the Investment Company Act of 1940, specifically Section 3(c)(1). This section is regarding the allowance of private funds avoiding requirements for the Securities and Exchange Commission (“SEC”). Section 3(c)(1) of the Investment Company Act provides:
(c) none of the following persons is an investment company within the meaning of this title:
(3) Any issuer whose outstanding securities (other than short-term paper) are beneficially owned by not more than one hundred persons and which is not making and does not presently propose to make a public offering of its securities.
This means that any private equity fund that meets this definition is not considered an investment company under the Investment Company Act. Private equity funds with less than 100 investors or private equity funds that have no plans to ever make an initial public offering (IPO) are not required to register with the SEC. These private equity funds are also not required to fulfill any of the other requirements of a private equity fund registered with the SEC. This includes any additional disclosure requirements mandated by the SEC.
Starting a private equity fund or hedge fund is quite complex, especially when the correct exemption from registration. One should never start a private equity fund without spending time discussing business decisions and plans with an attorney.
For more information:
If you are considering starting a private equity fund and would like to speak with an attorney regarding the process and potential pitfalls, please contact our office or call us at (513) 241-0400 to schedule an initial consultation.