How can 96 investors count as 116 under 3(c)(1)?
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A 3(c)(1) fund can have at most 100 beneficial owners. If another fund owns 10% or more of your fund's voting securities, you count that fund's own owners instead of counting it as one. So a fund with 96 investors that takes in a 10% fund-investor with 20 owners counts 116 and loses the exemption. Similar funds you run can also be counted together.
Everything here is for educational purposes only and is not legal, tax or investment advice, or an offer to buy or sell any security. Laws and thresholds change and depend on your facts, so talk to a qualified attorney before acting.
Key facts
- Section 3(c)(1) allows at most 100 beneficial owners.
- A fund investor holding under 10% of the voting securities counts as one owner.
- At 10% or more, its owners are counted instead (the look-through rule).
- Similar funds of the same manager can be integrated and counted as one fund.
Transcript
Operator: Your fund has 96 investors. One more joins, and suddenly you have 116.
Founder: That's not how adding works.
Operator: Watch. 96 people own the fund. That's 96 owners.
Operator: Another fund buys in with 9% of the votes. It counts as one. 97.
Founder: And at 10%?
Operator: At 10% or more, you count that fund's owners instead. It has 20.
Operator: 96 plus 20: 116. Past the limit of 100.
Founder: Over one percentage point.
Operator: And two similar funds of your own can be treated as one, so their owners add up too.
Founder: So I add one investor and...