{"concept_id":"ALTSS-REG-016","slug":"3-c-1-fund","canonical_name":"3(c)(1) Fund","aliases":["3c1","Section 3(c)(1)"],"kind":"regulation","authority":"regulatory","facets":["REG","VEH"],"domains":["LEGAL-REGULATORY-TAX","FUND-STRUCTURES"],"display_title":"3(c)(1) Fund","search_aliases":["what is a 3(c)(1) fund","3c1 fund 100 investor limit","3(c)(1) exemption","qualifying venture capital fund 250 investors","3(c)(1) look-through rule 10%","3(c)(1) $12 million venture fund"],"one_sentence_definition":"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.","plain_english":"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":"US","parent_concepts":["investment-company-act"],"child_concepts":[],"related_concepts":["3-c-7-fund","3c1-vs-3c7","accredited-investor","qualified-client","regulation-d","venture-capital","exempt-reporting-adviser","emerging-manager","plan-assets"],"comparison_concepts":[],"not_the_same_as":[{"slug":"3-c-7-fund","distinction":"A 3(c)(7) fund has no statutory owner cap but admits only qualified purchasers."},{"slug":"regulation-d","distinction":"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."}],"formula_ids":[],"worked_examples":[{"title":"Illustrative beneficial-owner count","paragraphs":["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."]}],"sections":[{"heading":"Jurisdiction and status","paragraphs":["US federal law: section 3(c)(1) of the [Investment Company Act of 1940](/glossary/investment-company-act). 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."]},{"heading":"The conditions","paragraphs":["| Condition | Requirement | Provision |\n|---|---|---|\n| Owner count | Outstanding securities (other than short-term paper) beneficially owned by not more than 100 persons | 3(c)(1) |\n| 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 |\n| No public offering | Not making and not presently proposing to make a public offering of its securities | 3(c)(1) |"]},{"heading":"Counting beneficial owners","paragraphs":["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.\n- **Knowledgeable employees** of the fund or its manager are disregarded (Rule 3c-5).\n- **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."]},{"heading":"Investor eligibility layered on top","paragraphs":["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](/glossary/regulation-d), so investors are usually [accredited investors](/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](/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](/glossary/qualified-client). And under the US Employee Retirement Income Security Act (ERISA), the fund's assets become [plan assets](/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."]},{"heading":"When managers use 3(c)(1)","paragraphs":["3(c)(1) suits smaller funds, [emerging managers](/glossary/emerging-manager) and funds with individual investors who are accredited but not [qualified purchasers](/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](/glossary/3-c-7-fund); see [3(c)(1) vs 3(c)(7)](/glossary/3c1-vs-3c7)."]}],"classification_rules":[],"calculation_rules":[],"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."],"external_standard_mappings":[],"source_ids":["SRC-US-ECFR-230-506","SRC-US-ECFR-270-3C-5","SRC-US-ECFR-270-3C-7","SRC-US-ECFR-275-203L-1","SRC-US-ECFR-275-205-3","SRC-US-FR-2024-19229","SRC-US-SEC-ORDER-IA-6961","SRC-US-USC-15-80A-3","SRC-US-USC-29-1002"],"citations":[{"source_id":"SRC-US-USC-15-80A-3","pinpoint":"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)","source":{"source_id":"SRC-US-USC-15-80A-3","title":"15 U.S.C. 80a-3 - Definition of investment company (Investment Company Act sec. 3, incl. 3(c)(1) and 3(c)(7))","publisher":"U.S. Congress (United States Code; LII mirror)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/15/80a-3","publication_date":"Current US Code text as published by LII (accessed 2026-10-01)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-ECFR-270-3C-7","pinpoint":"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","source":{"source_id":"SRC-US-ECFR-270-3C-7","title":"17 CFR 270.3c-7 - Inflation-adjusted definition of qualifying venture capital fund","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/270.3c-7","publication_date":"Adopted 89 FR 70479 (2024-08-30); effective 2024-09-30","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-FR-2024-19229","pinpoint":"89 FR 70479","supports":"Adoption of the QVCF inflation adjustment","source":{"source_id":"SRC-US-FR-2024-19229","title":"Qualifying Venture Capital Funds Inflation Adjustment (final rule), 89 FR 70479","publisher":"U.S. Securities and Exchange Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2024-08-30/pdf/2024-19229.pdf","publication_date":"Published 2024-08-30; effective 2024-09-30","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-ECFR-270-3C-5","pinpoint":"17 CFR 270.3c-5(b)","supports":"Knowledgeable employees excluded from the 3(c)(1) count","source":{"source_id":"SRC-US-ECFR-270-3C-5","title":"17 CFR 270.3c-5 - Beneficial ownership by knowledgeable employees and certain other persons","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/270.3c-5","publication_date":"eCFR current as of 2026-09-29; unchanged since 1997 adoption (62 FR 17529)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-ECFR-275-205-3","pinpoint":"17 CFR 275.205-3","supports":"Look-through to equity owners of a 3(c)(1) fund for performance fees","source":{"source_id":"SRC-US-ECFR-275-205-3","title":"17 CFR 275.205-3 - Exemption from the compensation prohibition of section 205(a)(1) for investment advisers (qualified client)","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/275.205-3","publication_date":"eCFR current as of 2026-09-29; last amended 86 FR 62475 (2021-11-10)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-SEC-ORDER-IA-6961","pinpoint":"Release IA-6961","supports":"Current qualified client amounts","source":{"source_id":"SRC-US-SEC-ORDER-IA-6961","title":"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","publisher":"U.S. Securities and Exchange Commission","document_type":"release","url":"https://www.sec.gov/files/rules/ia/2026/ia-6961.pdf","publication_date":"Issued 2026-04-28; effective 2026-06-29","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-ECFR-275-203L-1","pinpoint":"17 CFR 275.203(l)-1","supports":"Venture capital fund definition used by the QVCF test","source":{"source_id":"SRC-US-ECFR-275-203L-1","title":"17 CFR 275.203(l)-1 - Venture capital fund defined","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/275.203(l)-1","publication_date":"eCFR current as of 2026-09-29; last amended 2018-03-12","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-ECFR-230-506","pinpoint":"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","source":{"source_id":"SRC-US-ECFR-230-506","title":"17 CFR 230.506 - Exemption for limited offers and sales without regard to dollar amount of offering (Rule 506(b) and 506(c))","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/230.506","publication_date":"eCFR current as of 2026-09-29; last amended 2021-06-09","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-USC-29-1002","pinpoint":"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","source":{"source_id":"SRC-US-USC-29-1002","title":"29 U.S.C. 1002 - Definitions (ERISA sec. 3, incl. 3(34), 3(35), 3(42))","publisher":"U.S. Congress (United States Code; LII mirror)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/29/1002","publication_date":"Current US Code text as published by LII (accessed 2026-10-01); para. (42) added by Pub. L. 109-280, sec. 611(f) (2006)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}}],"faq":[{"q":"How many investors can a 3(c)(1) fund have?","a":"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."},{"q":"Do 3(c)(1) investors need to be qualified purchasers?","a":"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."}],"seo":{},"first_published":"2026-01-12","last_reviewed":"2026-10-02","last_modified":"2026-10-02","content_version":"2.0.0","url":"https://altss.com/glossary/3-c-1-fund","json_url":"https://altss.com/reference/concepts/3-c-1-fund.json","title":"3(c)(1) Fund","formulas":[],"sources":[{"source_id":"SRC-US-ECFR-230-506","title":"17 CFR 230.506 - Exemption for limited offers and sales without regard to dollar amount of offering (Rule 506(b) and 506(c))","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/230.506","publication_date":"eCFR current as of 2026-09-29; last amended 2021-06-09","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-ECFR-270-3C-5","title":"17 CFR 270.3c-5 - Beneficial ownership by knowledgeable employees and certain other persons","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/270.3c-5","publication_date":"eCFR current as of 2026-09-29; unchanged since 1997 adoption (62 FR 17529)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-ECFR-270-3C-7","title":"17 CFR 270.3c-7 - Inflation-adjusted definition of qualifying venture capital fund","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/270.3c-7","publication_date":"Adopted 89 FR 70479 (2024-08-30); effective 2024-09-30","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-ECFR-275-203L-1","title":"17 CFR 275.203(l)-1 - Venture capital fund defined","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/275.203(l)-1","publication_date":"eCFR current as of 2026-09-29; last amended 2018-03-12","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-ECFR-275-205-3","title":"17 CFR 275.205-3 - Exemption from the compensation prohibition of section 205(a)(1) for investment advisers (qualified client)","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/275.205-3","publication_date":"eCFR current as of 2026-09-29; last amended 86 FR 62475 (2021-11-10)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-FR-2024-19229","title":"Qualifying Venture Capital Funds Inflation Adjustment (final rule), 89 FR 70479","publisher":"U.S. Securities and Exchange Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2024-08-30/pdf/2024-19229.pdf","publication_date":"Published 2024-08-30; effective 2024-09-30","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-SEC-ORDER-IA-6961","title":"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","publisher":"U.S. Securities and Exchange Commission","document_type":"release","url":"https://www.sec.gov/files/rules/ia/2026/ia-6961.pdf","publication_date":"Issued 2026-04-28; effective 2026-06-29","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-USC-15-80A-3","title":"15 U.S.C. 80a-3 - Definition of investment company (Investment Company Act sec. 3, incl. 3(c)(1) and 3(c)(7))","publisher":"U.S. Congress (United States Code; LII mirror)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/15/80a-3","publication_date":"Current US Code text as published by LII (accessed 2026-10-01)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-USC-29-1002","title":"29 U.S.C. 1002 - Definitions (ERISA sec. 3, incl. 3(34), 3(35), 3(42))","publisher":"U.S. Congress (United States Code; LII mirror)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/29/1002","publication_date":"Current US Code text as published by LII (accessed 2026-10-01); para. (42) added by Pub. L. 109-280, sec. 611(f) (2006)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}]}