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Investment Company
Practical Law Glossary Item 5-386-4479 (Approx. 2 pages)
Glossary
Investment Company
A company that issues securities to investors and does any of the following:
- Holds itself out as engaging primarily in the business of investing, reinvesting, or trading in securities.
- Engages in the business of issuing face amount certificates of the installment type.
- Engages in the business of investing, reinvesting, owning, holding, or trading in securities, and owns investment securities having a value exceeding 40% of the value of the issuer's total assets (exclusive of US government securities and cash items) on an unconsolidated basis.
(Section 3(a)(1), Investment Company Act of 1940, as amended (ICA).)
Investment companies are most often set up as either closed or open-ended funds that are also known as mutual funds. Most investment companies are registered with the SEC under the ICA.
Some companies that do not hold themselves out to be investment companies are deemed to be investment companies because more than 40% of their assets consist of investment securities. These companies usually do not register with the SEC because they organize themselves to fall within one or more of the exceptions from the definition of investment company.
For more information, see Practice Note, Investment Company Act of 1940 Exceptions: Guide for Transactional Lawyers.