what is the 3 c 7 exemption 
the 3 c 7 exemption refers to a portion of the investment company act of 1940 that allows private investment companies an exemption from some securities and exchange commission sec regulation providing that they meet certain criteria 3c7 is shorthand for the 3 c 7 exemption history of the 3 c 7 exemptionthe investment company act of 1940 defines an investment company as an issuer that holds itself out as being engaged primarily or proposes to engage primarily in the business of investing reinvesting or trading in securities the act regulates the organization of companies whose securities are offered to the public companies must disclose their financial condition and investment policies regularly 1however 3c7 is one of two exemptions in the investment company act of 1940 that hedge funds venture capital funds and other private equity funds use to avoid sec restrictions this frees up these funds to use tools like leverage and derivatives that most publicly traded funds cannot hedge funds private equity funds venture capital funds and other private investment vehicles are commonly organized to fall outside the purview of the investment company act of 1940 2claiming 3c7 exemption3c7 funds are not required to register with the securities and exchange commission or provide ongoing disclosure they are also exempt from issuing a prospectus that would outline investment positions 3c7 funds are also referred to as 3c7 companies or 3 c 7 funds 21there is no limit on the number of investors under section 3 c 7 however the fund can have up to 1 999 investors before registration would be required under the securities exchange act of 1934 3to qualify for the 3c7 exemption the private investment company must show that they have no plans of making an initial public offering ipo and that their investors are qualified purchasers a qualified purchaser is a higher standard than an accredited investor and is defined as 4523c7 funds vs 3c1 fundsboth 3c7 and 3c1 funds are exempted from the requirements imposed on investment companies under the investment company act of 1940 the act however there are differences between them 3c7 funds take investments from qualified purchasers whereas 3c1 funds work with accredited investors 1investors in 3c7 funds are held to a higher wealth measure than those in 3c1 funds which can limit the investor pool for a fund hoping to raise money 3c1 funds are capped at 100 investors limiting the number of investors the fund can take in from the pool they can pull from 6