3c1 refers to a portion of the investment company act of 1940 that allows private investment companies to be considered exceptions to certain regulations and reporting requirements stipulated by the securities and exchange commission sec however these firms must satisfy specific requirements to maintain their exception status 
understanding 3c13c1 is shorthand for the 3 c 1 exemption found in section 3 of the act to fully understand section 3c1 we must first review the act s definition of an investment company and how it relates to earlier sections of the act 3 b 1 and 3 c an investment company as defined by the investment company act are companies that primarily engage in the business of investing reinvesting or trading securities if companies are considered investment companies they must adhere to certain regulations and reporting requirements 13 b 1 was established to exclude certain companies from being considered an investment company and having to adhere to the subsequent regulations companies are exempt as long as they are not primarily in the business of investing reinvesting holding owning or trading in securities themselves or through subsidiaries or controlled companies 13 c takes it a step further and outlines specific exceptions to the classification of an investment company which include broker dealers pension plans church plans and charitable organizations 13 c 1 adds to the exceptions list in 3 c citing certain parameters or requirements that if satisfied would allow private investment companies to not be classified as investment companies under the act 13 c 1 exempts the following from definition of investment company in other words 3c1 allows private funds with 100 or fewer investors and venture capital funds with fewer than 250 investors and no plans for an initial public offering to sidestep sec registration and other requirements including ongoing disclosure and restrictions on derivatives trading 3c1 funds are also referred to as 3c1 companies or 3 c 1 funds the result of 3c1 is that it allows hedge fund companies to avoid the sec scrutiny that other investment funds such as mutual funds must adhere to under the act however the investors in 3c1 funds must be accredited investors meaning investors who have an annual income of over 200 000 or a net worth in excess of 1 million 23c1 funds vs 3c7 fundsprivate equity funds are usually structured as 3c1 funds or 3c7 funds the latter being a reference to the 3 c 7 exemption both 3c1 and 3c7 funds are exempt from sec registration requirements under the investment company act of 1940 but the nature of the exemption is slightly different whereas the 3c1 exemption hinges on not exceeding 100 accredited investors a 3c7 fund must maintain a total of 2 000 or fewer qualified purchasers however qualified purchasers must clear a higher bar and have over 5 million in assets but a 3c7 fund is permitted to have more of these people or entities participating as investors 343c1 compliance challengesalthough 100 accredited investors sound like an easy limit to monitor it can be a challenging area for fund compliance private funds are generally protected in the case of involuntary share transfers for example the death of an investor results in shares being split up among family members would be considered an involuntary transfer however these funds can run into issues with shares given as employment incentives knowledgeable employees including executives directors and partners do not count against the fund s tally however employees who leave the firm carrying the shares with them will count against the 100 investor limit the one hundred person limit is so critical to the investment company exemption and 3c1 status that private funds put a great deal of effort into making certain they are in compliance 