3(c)(7) Exemption

    flowchart TD
	    A[Investment Company Act of 1940] --> B{Exemptions}
	    B -->|3(c)(7)| C[Privately offered funds]
	    B -->|Reg D| D[General solicitation possible]
	    C -->|Limit| E[Qualifies Purchasers Only]
	    C -->|Investor Cap| F[Max 1,999 Investors]

## What type of investors are allowed in a 3(c)(7) fund? - [x] Qualified Purchasers - [ ] Retail Investors - [ ] Accredited Investors - [ ] Non-accredited Investors > **Explanation:** Only qualified purchasers, who meet specific financial criteria, are allowed to invest in funds under the 3(c)(7) exemption. ## What is the maximum number of investors in a 3(c)(7) fund? - [ ] 1,000 - [ ] 2,000 - [ ] 1,999 - [x] 1,999 > **Explanation:** A 3(c)(7) fund can have a maximum of 1,999 investors before it must register with the SEC. ## What is one key restriction on 3(c)(7) funds? - [ ] They cannot charge investors fees. - [ ] They must have a minimum investment amount. - [ ] They cannot issue public shares. - [x] They cannot plan to issue an IPO. > **Explanation:** Three (c)(7) funds cannot plan for an IPO, maintaining their status as private investment funds. ## If a fund plans to go public, what section of the Act would apply instead of 3(c)(7)? - [ ] 4(a)(2) - [ ] 3(c)(1) - [ ] Regulation D - [x] None of the above (as they can't be 3(c)(7) if they're going public) > **Explanation:** If a fund plans to go public, it cannot qualify under the 3(c)(7) exemption. ## What is the penalty for not registering after exceeding 1,999 investors? - [ ] None, if they provide good service - [ ] SEC sanctions - [x] Legal action and potential fines - [ ] Temporary suspension of operations > **Explanation:** Failing to register after reaching 1,999 investors can lead to legal action from the SEC. ## How must a 3(c)(7) fund handle investor solicitations? - [ ] Open solicitations through advertisements - [ ] Targeted solicitations exclusively - [x] No public solicitation at all - [ ] Solicit funds through infomercials > **Explanation:** 3(c)(7) funds must avoid public solicitation entirely to maintain their exemption status. ## What is a "qualified purchaser"? - [ ] Someone who buys tickets to sold-out concerts - [ ] Any investor with enthusiasm - [x] An investor with at least $5 million in investments - [ ] A casual investor > **Explanation:** A "qualified purchaser" is defined as an investor who owns a significant amount of assets, specifically $5 million or more. ## In 3(c)(7) structures, what's the aim of avoiding the SEC regulations? - [ ] To confuse investors - [x] To allow more investment freedom - [ ] To create arbitrary rules - [ ] To lessen financial risks inherently > **Explanation:** The primary aim of the exemption is to allow private funds more freedom in their operations and investments without facing extensive regulations imposed by the SEC. ## Are regulatory burdens lighter for 3(c)(7) funds compared to public funds? - [x] Yes - [ ] No - [ ] Not sure - [ ] Depends on the manager > **Explanation:** 3(c)(7) funds definitely enjoy lighter regulatory burdens compared to public funds, letting them operate with more flexibility. ## If an investor wishes to invest in a 3(c)(7) fund, what must they provide? - [ ] Evidence of annual income - [ ] A social security number - [x] Proof of being a qualified purchaser - [ ] A recommendation letter from their cat > **Explanation:** Investors must provide proof of their status as qualified purchasers, ensuring compliance with the exemption's standards.