What is a Fund and How Can it Utilize Reg A?

by | Friday April 1, 2022
What is a Fund and How Can it Utilize Reg A?

In the traditional sense of a fund, you may be thinking of something like a hedge fund, or other sort of entity that invests in smaller portions of other entities. However, these types of funds are not able to raise capital using Regulation A. So when it comes to RegA+ exemptions, what is a fund and how does it work?

In 1940, the Investment Company Act was passed into law, regulating how investment companies are organized and they types of activities they are permitted to conduct. This law also specifies the requirements for various types of funds, including open or closed-end mutual funds. However, under Regulation A, companies that fall under this definition of an investment company are prohibited from using the exemption to raise investments.

For a “fund” to utlize RegA, it is required to have an exemption from being an investment company. Some rules do apply here, such as the exemptions of having less than 100 investors or having certain qualified investor are not applicable. In the case of Regulation A+, a common exemption is that the fund is not investing in securities. Instead, it may be investing in assets such as real estate or collectibles.

Other considerations must be taking into account when trying to have the offering qualified by the SEC, such as being able to explain how investors will be getting their money back. For RegA+, funds must also have a business plan in place. For example, they must define the types of companies they are looking to invest in or acquire, especially by defining which companies specifically.

However, the process is generally complex, and requires careful planning and discussions with legal advisors to ensure that the raise is done compliantly and according to SEC regulations.

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Join the All-In-One Platform empowering private capital markets.

Free forever, KoreConX makes it easy for participants in private capital markets to manage their investment portfolios, raise capital, and meet global compliance standards along every step of the way.