A significant portion of private funds rely on the exemptions
from registration under either Section 3(c)(1) or Section 3(c)(7)
(Registration Exemptions) of the Investment Company Act of 1940
(Investment Company Act). Section 3(c)(1) exempts issuers whose
outstanding securities are beneficially owned by 100 or fewer
persons (100 Person Limit). Alternatively, Section 3(c)(7) exempts
issuers whose outstanding securities are owned exclusively by
persons who, at the time of acquisition or transfer of such
securities, are qualified purchasers (i.e., most partnerships,
corporations and other legal entities with at least $25 million in
investments) (Qualified Purchaser Requirement and, together with
the 100 Person Limit, the Exemption Requirements).
To rely on a Registration Exemption, sponsors must include
appropriate questionnaires in their funds' subscription
documents and transfer agreements to ensure compliance with
applicable Exemption Requirements. Further, sponsors need to
understand how the Exemption Requirements are affected, if at all,
by certain look-through rules and integration requirements
developed by the SEC. This article explores how sponsors can ensure
their funds comply with Exemption Requirements after applying
certain look-through rules and the integration doctrine, with a
special focus on multi-entity fund complexes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
