{"concept_id":"ALTSS-REG-017","slug":"3-c-7-fund","canonical_name":"3(c)(7) Fund","aliases":["3c7","Section 3(c)(7)"],"kind":"regulation","authority":"regulatory","facets":["REG","VEH"],"domains":["LEGAL-REGULATORY-TAX","FUND-STRUCTURES"],"display_title":"3(c)(7) Fund","search_aliases":["what is a 3(c)(7) fund","3c7 fund requirements","3(c)(7) investor limit","3(c)(7) qualified purchaser","3(c)(7) exemption","how many investors can a 3c7 fund have"],"one_sentence_definition":"A 3(c)(7) fund is a private fund excluded from investment-company status by Investment Company Act section 3(c)(7) because its securities are owned exclusively by qualified purchasers and it makes no public offering.","plain_english":"Instead of capping the number of investors, section 3(c)(7) restricts who may invest: only qualified purchasers, broadly individuals with at least $5 million and institutions with at least $25 million in investments. In exchange there is no statutory limit on the number of investors, which is why most large institutional private funds use it.","formal_definition":"Section 3(c)(7)(A) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(7)(A)) excludes from the definition of investment company any issuer whose outstanding securities are owned exclusively by persons who, at the time of acquisition of such securities, are qualified purchasers, and which is not making and does not at that time propose to make a public offering of such securities.","jurisdiction":"US","parent_concepts":["investment-company-act"],"child_concepts":[],"related_concepts":["qualified-purchaser","3-c-1-fund","3c1-vs-3c7","qualified-client","rule-144a","collateralized-loan-obligation","secondaries","transfer-of-lp-interest"],"comparison_concepts":[],"not_the_same_as":[{"slug":"3-c-1-fund","distinction":"A 3(c)(1) fund caps the number of beneficial owners but sets no investor-wealth test; a 3(c)(7) fund sets no cap but admits only qualified purchasers."},{"slug":"qualified-purchaser","distinction":"Qualified purchaser is the investor status; 3(c)(7) is the fund-level exclusion that requires it."}],"formula_ids":[],"worked_examples":[],"sections":[{"heading":"Jurisdiction and status","paragraphs":["US federal law: section 3(c)(7) of the [Investment Company Act of 1940](/glossary/investment-company-act), read with the [qualified purchaser](/glossary/qualified-purchaser) definition in section 2(a)(51) and Securities and Exchange Commission (SEC) Rules 2a51-1 (investments) and 3c-5 (knowledgeable employees). Like 3(c)(1) it is an **exclusion** from the definition of investment company, not an exemption. The qualified purchaser dollar amounts are statutory and unchanged."]},{"heading":"The conditions","paragraphs":["| Condition | Requirement | Provision |\n|---|---|---|\n| Ownership | Outstanding securities owned exclusively by persons who were qualified purchasers when they acquired them | 3(c)(7)(A); 2(a)(51) |\n| Knowledgeable employees | Securities held by knowledgeable employees of the fund or its manager are disregarded, so they need not be qualified purchasers | Rule 3c-5(b) |\n| No public offering | Not making and not then proposing to make a public offering | 3(c)(7)(A) |\n| Entities formed to invest | A company formed for the specific purpose of acquiring the fund's securities is a qualified purchaser only if each of its beneficial owners is one | Rule 2a51-3(a) |\n| Number of owners | No limit in section 3(c)(7) | — |"]},{"heading":"How many investors in practice","paragraphs":["Section 3(c)(7) has no owner cap, but under Exchange Act section 12(g) an issuer with total assets above $10 million and a class of equity securities held of record by 2,000 or more persons, or by 500 or more persons who are not accredited investors, must register that class within 120 days after the end of the fiscal year (securities received under an exempt employee compensation plan are not counted). 3(c)(7) funds therefore commonly cap the number of record holders in their constitutional documents. The practical ceiling comes from that securities-law trigger, not from the Investment Company Act."]},{"heading":"Why managers use 3(c)(7)","paragraphs":["Institutional funds use 3(c)(7) because it removes the 100-owner constraint and because their investors are mostly institutions that are qualified purchasers anyway. A person that is a qualified purchaser when the advisory contract is entered into is a [qualified client](/glossary/qualified-client) (Rule 205-3(d)(1)(ii)(B)), so a registered adviser can charge [carried interest](/glossary/carried-interest-carry) without a separate investor-level test. A manager often runs a [3(c)(1) fund](/glossary/3-c-1-fund) and a 3(c)(7) fund side by side for investors on either side of the qualified purchaser line; the statute provides that the two are not treated as a single issuer for counting purposes (section 3(c)(7)(E)). Securitisation and other structured vehicles sold under [Rule 144A](/glossary/rule-144a) commonly limit buyers to qualified institutional buyers that are also qualified purchasers so that the vehicle can rely on 3(c)(7)."]},{"heading":"Transfers and secondaries","paragraphs":["Qualified-purchaser status is tested at acquisition (section 3(c)(7)(A)). An investor whose investments later fall below the thresholds keeps its interest, but a buyer of an interest in a [secondary](/glossary/secondaries) transaction, and an existing investor making an additional acquisition, must be a qualified purchaser at that time unless it is a knowledgeable employee (Rule 3c-5). Section 3(c)(7)(A) deems securities received from a qualified purchaser as a gift or bequest, or through legal separation, divorce, death or another involuntary event, to be owned by a qualified purchaser; under Rule 3c-6, securities received from a qualified purchaser by its estate, by a donee (by gift or bequest or under an agreement relating to a legal separation or divorce) or by a company established exclusively for the transferor and those persons are deemed to be acquired by a qualified purchaser. Transfer provisions in the limited partnership agreement and the general partner's consent process enforce this."]}],"classification_rules":[],"calculation_rules":[],"common_mistakes":["Calling 3(c)(7) an exemption. It is an exclusion from the definition of investment company.","Describing qualified-purchaser status as merely common for 3(c)(7) investors. Exclusive ownership by qualified purchasers is a statutory condition.","Assuming 3(c)(7) has a statutory investor cap. The practical limit comes from Exchange Act registration thresholds.","Requiring investors to remain qualified purchasers after acquisition."],"edge_cases":["An entity formed to invest in the fund is a qualified purchaser only if each of its owners is one.","Knowledgeable employees may invest without being qualified purchasers and do not affect the exclusive-ownership test."],"external_standard_mappings":[],"source_ids":["SRC-US-ECFR-270-2A51-1","SRC-US-ECFR-270-2A51-3","SRC-US-ECFR-270-3C-5","SRC-US-ECFR-270-3C-6","SRC-US-ECFR-275-205-3","SRC-US-INVESTORGOV-HEDGE-FUNDS","SRC-US-USC-15-78L","SRC-US-USC-15-80A-2","SRC-US-USC-15-80A-3"],"citations":[{"source_id":"SRC-US-USC-15-80A-3","pinpoint":"15 U.S.C. 80a-3(c)(7)(A), (c)(7)(B), (c)(7)(E)","supports":"Exclusive qualified-purchaser ownership at acquisition; no public offering; pre-1996 grandfathering; 3(c)(1) and 3(c)(7) funds not treated as a single issuer","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-USC-15-80A-2","pinpoint":"15 U.S.C. 80a-2(a)(51)(A)","supports":"Qualified purchaser definition and statutory thresholds","source":{"source_id":"SRC-US-USC-15-80A-2","title":"15 U.S.C. 80a-2 - Definitions (Investment Company Act sec. 2, incl. 2(a)(48) BDC and 2(a)(51) qualified purchaser)","publisher":"U.S. Congress (United States Code; LII mirror)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/15/80a-2","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-5","pinpoint":"17 CFR 270.3c-5(b)","supports":"Knowledgeable employees disregarded","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-270-2A51-1","pinpoint":"17 CFR 270.2a51-1(b)","supports":"Investments counted toward qualified purchaser tests","source":{"source_id":"SRC-US-ECFR-270-2A51-1","title":"17 CFR 270.2a51-1 - Definition of investments for purposes of section 2(a)(51) (qualified purchaser); certain calculations","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/270.2a51-1","publication_date":"eCFR current as of 2026-09-29; no substantive amendment since eCFR baseline (2016-12-31)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-ECFR-275-205-3","pinpoint":"17 CFR 275.205-3(d)(1)(ii)(B)","supports":"Qualified purchasers are qualified clients","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-INVESTORGOV-HEDGE-FUNDS","pinpoint":"Hedge Funds","supports":"Private funds require accredited investors or qualified purchasers depending on structure","source":{"source_id":"SRC-US-INVESTORGOV-HEDGE-FUNDS","title":"Hedge Funds","publisher":"U.S. Securities and Exchange Commission (Investor.gov)","document_type":"guidance","url":"https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/hedge-funds","publication_date":"Accessed 2026-10-01","jurisdiction":"US","status":"current","last_verified":"2026-10-01"}},{"source_id":"SRC-US-USC-15-78L","pinpoint":"Sec. 12(g)(1)(A), (g)(5)","supports":"Exchange Act registration thresholds","source":{"source_id":"SRC-US-USC-15-78L","title":"15 U.S.C. 78l - Registration requirements for securities (Exchange Act s.12), incl. s.12(g)","publisher":"U.S. Congress (US Code via LII)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/15/78l","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-270-2A51-3","pinpoint":"17 CFR 270.2a51-3(a)","supports":"Entities formed to invest","source":{"source_id":"SRC-US-ECFR-270-2A51-3","title":"17 CFR 270.2a51-3 - Certain companies as qualified purchasers","publisher":"U.S. Securities and Exchange Commission (CFR text via LII)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/270.2a51-3","publication_date":"Current CFR text as published by LII (accessed 2026-10-01); source line 62 FR 17528, Apr. 9, 1997","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-ECFR-270-3C-6","pinpoint":"17 CFR 270.3c-6(a)-(b)","supports":"Transfers to estates and donees (gift, bequest, separation, divorce) deemed owned by the transferor","source":{"source_id":"SRC-US-ECFR-270-3C-6","title":"17 CFR 270.3c-6 - Certain transfers of interests in section 3(c)(1) and section 3(c)(7) funds","publisher":"U.S. Securities and Exchange Commission (CFR text via LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/270.3c-6","publication_date":"Current CFR text as published by LII (accessed 2026-10-02)","jurisdiction":"US","status":"in force","last_verified":"2026-10-02"}}],"faq":[{"q":"How many investors can a 3(c)(7) fund have?","a":"Section 3(c)(7) sets no limit. Funds usually cap the number of record holders to stay below Exchange Act registration thresholds."},{"q":"Can a 3(c)(7) fund accept investors who are not qualified purchasers?","a":"Generally only knowledgeable employees of the fund or its manager (Rule 3c-5). Every other owner must be a qualified purchaser when it acquires its interest, except that securities received from a qualified purchaser by gift or bequest, or through legal separation, divorce, death or another involuntary event, are deemed owned by a qualified purchaser (section 3(c)(7)(A); Rule 3c-6). Section 3(c)(7)(B) also preserves holdings of up to 100 non-qualified purchasers who acquired interests on or before 1 September 1996 in a fund that then relied on section 3(c)(1), provided that, before relying on section 3(c)(7), the fund told each owner that future investors would be limited to qualified purchasers and gave each a reasonable opportunity to redeem."}],"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-7-fund","json_url":"https://altss.com/reference/concepts/3-c-7-fund.json","title":"3(c)(7) Fund","formulas":[],"sources":[{"source_id":"SRC-US-ECFR-270-2A51-1","title":"17 CFR 270.2a51-1 - Definition of investments for purposes of section 2(a)(51) (qualified purchaser); certain calculations","publisher":"U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/270.2a51-1","publication_date":"eCFR current as of 2026-09-29; no substantive amendment since eCFR baseline (2016-12-31)","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-ECFR-270-2A51-3","title":"17 CFR 270.2a51-3 - Certain companies as qualified purchasers","publisher":"U.S. Securities and Exchange Commission (CFR text via LII)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/270.2a51-3","publication_date":"Current CFR text as published by LII (accessed 2026-10-01); source line 62 FR 17528, Apr. 9, 1997","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-6","title":"17 CFR 270.3c-6 - Certain transfers of interests in section 3(c)(1) and section 3(c)(7) funds","publisher":"U.S. Securities and Exchange Commission (CFR text via LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/270.3c-6","publication_date":"Current CFR text as published by LII (accessed 2026-10-02)","jurisdiction":"US","status":"in force","last_verified":"2026-10-02"},{"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-INVESTORGOV-HEDGE-FUNDS","title":"Hedge Funds","publisher":"U.S. Securities and Exchange Commission (Investor.gov)","document_type":"guidance","url":"https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/hedge-funds","publication_date":"Accessed 2026-10-01","jurisdiction":"US","status":"current","last_verified":"2026-10-01"},{"source_id":"SRC-US-USC-15-78L","title":"15 U.S.C. 78l - Registration requirements for securities (Exchange Act s.12), incl. s.12(g)","publisher":"U.S. Congress (US Code via LII)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/15/78l","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-15-80A-2","title":"15 U.S.C. 80a-2 - Definitions (Investment Company Act sec. 2, incl. 2(a)(48) BDC and 2(a)(51) qualified purchaser)","publisher":"U.S. Congress (United States Code; LII mirror)","document_type":"statute","url":"https://www.law.cornell.edu/uscode/text/15/80a-2","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-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"}]}