--- title: "3(c)(1) Fund | Altss Glossary" description: "A 3(c)(1) fund is a private fund excluded from investment-company status by Investment Company Act section 3(c)(1) because it has no more than 100…" canonical: "https://altss.com/glossary/3-c-1-fund" --- Glossary · Legal, regulatory & tax # 3(c)(1) Fund Also called: 3c1 · Section 3(c)(1) A 3(c)(1) fund is a private fund excluded from investment-company status by Investment Company Act section 3(c)(1) because it has no more than 100 beneficial owners (250 for a qualifying venture capital fund) and makes no public offering. Publisher: Altss LLCPublished 2026-01-12Content modified 2026-10-02 ALTSS-REG-016 A pooled vehicle that invests in securities would normally be an investment company that must register with the Securities and Exchange Commission (SEC) and accept heavy regulation. Section 3(c)(1) takes small-investor-count funds out of that definition. The constraint is the number of owners, not their wealth, though other rules usually require the owners to be accredited investors and, where a registered adviser charges carried interest, qualified clients. ### Formal definition Section 3(c)(1) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1)) excludes from the definition of investment company any issuer whose outstanding securities (other than short-term paper) are beneficially owned by not more than 100 persons (or, for a qualifying venture capital fund, 250 persons) and which is not making and does not presently propose to make a public offering of its securities. ## Jurisdiction and status US federal law: section 3(c)(1) of the Investment Company Act of 1940. It is an **exclusion** from the definition of investment company, not an exemption from registration: a fund within it is not an investment company for the Act's purposes. The qualifying venture capital fund (QVCF) variant, added by Pub. L. 115-174 in 2018, raised the owner limit to 250 for such funds. The statute set the QVCF size cap at $10 million of aggregate capital contributions and uncalled committed capital, indexed every five years. SEC Rule 3c-7 raised it to **$12 million effective 30 September 2024**; the next adjustment is due by order on or about 1 November 2029. ## The conditions | Condition | Requirement | Provision | | --- | --- | --- | | Owner count | Outstanding securities (other than short-term paper) beneficially owned by not more than 100 persons | 3(c)(1) | | QVCF variant | Not more than 250 persons, if the fund is a venture capital fund (as defined in Advisers Act Rule 203(l)-1) with no more than $12 million of aggregate capital contributions and uncalled committed capital | 3(c)(1), 3(c)(1)(C)(i); Rule 3c-7 | | No public offering | Not making and not presently proposing to make a public offering of its securities | 3(c)(1) | ## Counting beneficial owners The count is of beneficial owners, not investors of record, and several rules change it: - **Entity investors** generally count as one owner. Under section 3(c)(1)(A), however, if an investing company owns 10% or more of the fund's outstanding voting securities and is itself an investment company, or would be but for 3(c)(1) or 3(c)(7), its own holders are counted instead. Fund-of-funds and feeder investors near 10% therefore need attention. - **Knowledgeable employees** of the fund or its manager are disregarded (Rule 3c-5). - **Short-term paper** is not counted. Managers track the count at every close and on every transfer, and limited partnership agreements restrict transfers that would breach the limit. ## Investor eligibility layered on top Section 3(c)(1) sets no investor-wealth test, but three other rules usually do. The offering itself usually relies on Rule 506 of [Regulation D](https://altss.com/glossary/regulation-d), so investors are usually [accredited investors](https://altss.com/glossary/accredited-investor): Rule 506(c) admits only accredited investors, and Rule 506(b) allows no more than 35 purchasers who are not accredited investors in offerings under the rule in any 90-calendar-day period, each of whom must meet a financial-sophistication condition. If a registered adviser charges a performance fee or [carried interest](https://altss.com/glossary/carried-interest-carry), Rule 205-3 treats each investor in a 3(c)(1) fund that is charged the fee as a client who must be a [qualified client](https://altss.com/glossary/qualified-client). And under the US Employee Retirement Income Security Act (ERISA), the fund's assets become [plan assets](https://altss.com/glossary/plan-assets) if benefit plan investors hold 25% or more of the value of any class of its equity and no other exception applies. ## When managers use 3(c)(1) 3(c)(1) suits smaller funds, [emerging managers](https://altss.com/glossary/emerging-manager) and funds with individual investors who are accredited but not [qualified purchasers](https://altss.com/glossary/qualified-purchaser). Venture capital funds with no more than $12 million of aggregate capital contributions and uncalled committed capital can use the 250-owner QVCF variant. A manager that outgrows the 100-owner limit typically launches a parallel [3(c)(7) fund](https://altss.com/glossary/3-c-7-fund); see 3(c)(1) vs 3(c)(7). ## Worked example ### Illustrative beneficial-owner count A 3(c)(1) fund has 92 investors of record: 85 individuals, 5 operating companies and pension plans each holding under 10%, 1 knowledgeable employee of the manager, and 1 fund of funds (itself relying on 3(c)(1)) that holds 12% of the fund's outstanding voting securities and has 30 investors of its own. Count: 85 + 5 = 90; the knowledgeable employee is disregarded under Rule 3c-5; the fund of funds holds 10% or more and is itself a 3(c)(1) fund, so its 30 holders are counted instead of 1. Total **120**: the fund is over the limit. If the fund of funds held 9%, it would count as one owner and the total would be **91**. The example shows the counting mechanics only. Examples are illustrative; figures are not market data. ## Not the same as - [3(c)(7) Fund](https://altss.com/glossary/3-c-7-fund): A 3(c)(7) fund has no statutory owner cap but admits only qualified purchasers. - [Regulation D (Reg D)](https://altss.com/glossary/regulation-d): Regulation D exempts the offering from Securities Act registration; 3(c)(1) excludes the fund from the Investment Company Act. A private fund normally needs both. ## Common mistakes - Calling 3(c)(1) an exemption. It is an exclusion from the definition of investment company. - Omitting the second condition: no public offering. - Using the statutory $10 million QVCF cap. The cap has been $12 million since 30 September 2024. - Counting every fund-of-funds investor as one owner regardless of its stake. - Assuming accredited status is the only investor test when a registered adviser charges carried interest. ## Edge cases - A QVCF must meet the Rule 203(l)-1 venture capital fund definition (for example, at most 20% of capital in non-qualifying investments). - Owners counted under the 10% look-through can push a fund over the limit at a later close without any new direct investor. ## Questions ### How many investors can a 3(c)(1) fund have? No more than 100 beneficial owners, counted with the look-through and knowledgeable-employee rules; a qualifying venture capital fund with no more than $12 million of capital can have up to 250. ### Do 3(c)(1) investors need to be qualified purchasers? No. Qualified purchaser status is required only for 3(c)(7) funds. 3(c)(1) investors are usually accredited investors, and qualified clients if a registered adviser charges a performance fee. ## Sources - [15 U.S.C. 80a-3 - Definition of investment company (Investment Company Act sec. 3, incl. 3(c)(1) and 3(c)(7))](https://www.law.cornell.edu/uscode/text/15/80a-3). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). 15 U.S.C. 80a-3(c)(1), (c)(1)(A), (c)(1)(C)(i); Amendments note: 2018, subsec. (c)(1) (Pub. L. 115-174, sec. 504) — supports: 100/250 owner limits, no public offering, 10% look-through, statutory QVCF definition; 2018 insertion of the 250-person QVCF limit and subparagraph (C) - [17 CFR 270.3c-7 - Inflation-adjusted definition of qualifying venture capital fund](https://www.law.cornell.edu/cfr/text/17/270.3c-7). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), Adopted 89 FR 70479 (2024-08-30); effective 2024-09-30. Status: in force (checked 2026-10-01). 17 CFR 270.3c-7(a)-(b) — supports: QVCF cap $12,000,000 effective 2024-09-30; next adjustment by SEC order on or about 2029-11-01 - [Qualifying Venture Capital Funds Inflation Adjustment (final rule), 89 FR 70479](https://www.govinfo.gov/content/pkg/FR-2024-08-30/pdf/2024-19229.pdf). U.S. Securities and Exchange Commission (Federal Register via govinfo), Published 2024-08-30; effective 2024-09-30. Status: in force (checked 2026-10-01). 89 FR 70479 — supports: Adoption of the QVCF inflation adjustment - [17 CFR 270.3c-5 - Beneficial ownership by knowledgeable employees and certain other persons](https://www.law.cornell.edu/cfr/text/17/270.3c-5). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; unchanged since 1997 adoption (62 FR 17529). Status: in force (checked 2026-10-01). 17 CFR 270.3c-5(b) — supports: Knowledgeable employees excluded from the 3(c)(1) count - [17 CFR 275.205-3 - Exemption from the compensation prohibition of section 205(a)(1) for investment advisers (qualified client)](https://www.law.cornell.edu/cfr/text/17/275.205-3). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 86 FR 62475 (2021-11-10). Status: in force (checked 2026-10-01). 17 CFR 275.205-3 — supports: Look-through to equity owners of a 3(c)(1) fund for performance fees - [Order Approving Adjustment for Inflation of the Dollar Amount Tests in Rule 205-3 under the Investment Advisers Act of 1940, Release No. IA-6961](https://www.sec.gov/files/rules/ia/2026/ia-6961.pdf). U.S. Securities and Exchange Commission, Issued 2026-04-28; effective 2026-06-29. Status: in force (checked 2026-10-01). Release IA-6961 — supports: Current qualified client amounts - [17 CFR 275.203(l)-1 - Venture capital fund defined](https://www.law.cornell.edu/cfr/text/17/275.203(l)-1). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 2018-03-12. Status: in force (checked 2026-10-01). 17 CFR 275.203(l)-1 — supports: Venture capital fund definition used by the QVCF test - [17 CFR 230.506 - Exemption for limited offers and sales without regard to dollar amount of offering (Rule 506(b) and 506(c))](https://www.law.cornell.edu/cfr/text/17/230.506). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 2021-06-09. Status: in force (checked 2026-10-01). 17 CFR 230.506(b)(2)(i), (c)(2)(i) — supports: Rule 506(b) limit of 35 non-accredited purchasers; Rule 506(c) all purchasers accredited - [29 U.S.C. 1002 - Definitions (ERISA sec. 3, incl. 3(34), 3(35), 3(42))](https://www.law.cornell.edu/uscode/text/29/1002). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01); para. (42) added by Pub. L. 109-280, sec. 611(f) (2006). Status: in force (checked 2026-10-01). 29 U.S.C. 1002(42) (ERISA sec. 3(42)) — supports: Plan assets where benefit plan investors hold 25% or more of any class of equity ## Related terms 7 terms - [3(c)(7) Fund](https://altss.com/glossary/3-c-7-fund) - [Accredited Investor](https://altss.com/glossary/accredited-investor) - [Qualified Client](https://altss.com/glossary/qualified-client) - [Regulation D (Reg D)](https://altss.com/glossary/regulation-d) - [Venture Capital (VC)](https://altss.com/glossary/venture-capital) - [Emerging Manager](https://altss.com/glossary/emerging-manager) - [Plan Assets](https://altss.com/glossary/plan-assets) ## Referenced by 6 terms - [Beneficial Ownership](https://altss.com/glossary/beneficial-ownership) - [Form ADV](https://altss.com/glossary/form-adv) - [Fund of Funds (FoF)](https://altss.com/glossary/fund-of-funds-fof) - [Limited Partnership (LP)](https://altss.com/glossary/limited-partnership) - [Rule 506(b) vs Rule 506(c)](https://altss.com/glossary/rule-506-b-vs-506-c) - [Special Purpose Vehicle (SPV)](https://altss.com/glossary/spv-special-purpose-vehicle) ## Concept record Concept ID ALTSS-REG-016 Classification Legal, regulatory & tax · Fund / vehicle structure Topics Legal, regulatory & tax · Fund structures Jurisdiction US Version 2.0.0 Last reviewed 2026-10-02 Structured data [JSON](https://altss.com/reference/concepts/3-c-1-fund.json) Source check Legal and regulatory statements checked against the cited primary sources on 2026-10-02 ([how](https://altss.com/methodology)). General information, not advice. ## Canonical URL https://altss.com/glossary/3-c-1-fund