Are You An Investment Company? Strategic Planning Considerations for Companies that Don't Want to be an Investment Company

Counsel to the nation’s 8,000+ mutual funds are acutely aware that the Investment Company Act of 1940 (“1940 Act”) extensively regulates the activities of investment companies, but corporate counsel should recognize that the 1940 Act’s broad reach can catch many types of operating companies that have no intention or desire to be an investment company.

Investment company status questions frequently arise at inopportune times - for example, most underwriting agreements require the issuer to represent that it is not, and will not after the offering be, subject to the 1940 Act. Operating companies, particularly those that are reporting companies under the Securities Exchange Act of 1934, also need to plan carefully to avoid last-minute status issues under the 1940 Act.

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