A registered investment company is an investment company that is 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 US Dollars (USD) in assets under management, it must register with the SEC to become a registered investment company. Companies with $25 million USD in assets under management can register, but they are not required to do so until their assets under management reach the $30 million USD threshold. Smaller companies can register with their state securities commission.
In response to the stock market crash of 1929 which precipitated the Great Depression, the U.S. Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. These two laws governed the way that securities were bought and sold, but did not 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 advisors, and to standardize the requirements for companies that offered mutual funds and other investment products.
The Investment Company Act of 1940 defines how a registered investment company 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 who provide mutual funds, which are also called open-ended funds, as well as closed-end funds and unit investment trusts. The Investment Company Act of 1940 specifically defines the parameters of income distribution, fee structure and diversification of assets for a registered investment company. Companies which do not abide by these regulations risk losing their status as registered investment companies.
Certain types of companies are excluded from the regulations of the Investment Company Act of 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 therefore are usually not required to be registered with the SEC as registered investment companies. 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 they are not required to register. Companies with their headquarters outside the United States tend not to register as the requirements for foreign companies are somewhat onerous.
