Investment firms in the US with over $30 million in assets must register with the SEC to become a registered investment firm, governed by the Investment Company Act of 1940. The act standardizes requirements for mutual funds and other investment products, defines fee structures, and outlines fiduciary responsibilities. Private investment funds with fewer than 100 investors and investment clubs with less than 100 members are excluded from registration.
A registered investment firm is an investment firm registered in the United States with the Securities and Exchange Commission (SEC). The requirements for registration are governed by the Investment Company Act of 1940. Once an investment company in the United States has at least $30 million United States Dollars (USD) in assets under management, it must register with the SEC to become a registered investment. Companies with $25 million in assets under management are eligible to register, but are not required to do so until their assets under management reach the $30 million threshold. Smaller companies can register with their state securities commissions.
In response to the stock market crash of 1929 that precipitated the Great Depression, the United States Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. These two laws regulated the way securities were bought and sold, but they didn’t regulate the companies that traded them on behalf of individual investors. This led to the Investment Company Act of 1940 which was designed to protect investors from unscrupulous advisers and to standardize requirements for companies offering mutual funds and other investment products.
The Investment Company Act of 1940 defines how a registered investment firm can charge for its services, the documents it must file with the SEC, and its fiduciary responsibility to its clients. Investment companies are those companies that provide mutual funds, which are also called open-end funds, as well as closed-end funds and mutual funds. The Investment Company Act of 1940 specifically defines the income distribution, fee structure and asset diversification parameters for a registered investment company. Firms that fail to comply with these regulations risk losing their registered investment firm status.
Certain types of companies are excluded from the provisions of the Investment Company Act 1940 and therefore are not required to be registered investment companies. These include private investment funds with fewer than 100 investors. Hedge funds often fall into this category and are therefore usually not required to be registered with the SEC as a registered investment firm. Investment clubs typically do not need to register with the SEC unless they offer their own investment products and have more than 100 members. For this reason, investment clubs tend to keep their memberships relatively small so that you don’t have to sign up. Companies based outside the US tend not to register as the requirements for foreign companies are quite onerous.
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