CAPITAL RAISING DEVELOPMENTS FOR QUALIFIED OPPORTUNITY FUNDS
57
Qualified opportunity funds frequently qualify for an exclusion from regulation under the Investment Company Act .
Investment Company Act . However , funds raising capital from crowdfunding sources are far more likely to have more than 100 beneficial owners .
It is critical for a qualified opportunity fund to maintain qualification for exemption as an “ Investment Company ” under the Investment Company Act , in order not to be subject to its regulatory regime . Generally , an “ investment company ” is a corporation , business trust , partnership , or limited liability company that issues securities and is primarily engaged in the business of investing in securities . Investment companies can be privately or publicly owned , and they engage in the management , sale , and marketing of investment products to the public . Among other reasons , qualified opportunity funds generally do not intend to invest in securities . Nevertheless , a qualified opportunity fund would typically need to maintain its qualification for one or more exemptions from regulation under the Investment Company Act , in the event that it would otherwise seem to apply . If it cannot qualify with the nuances of the mortgages-related exemption found in Section 3 ( c )( 5 ), a qualified opportunity fund will ideally qualify for the “ private fund exemption ,” found in Section 3 ( c )( 1 ) or 3 ( c )( 7 ) of the Investment Company Act , so long as it has fewer than 100 beneficial owners . If relying solely on Section 3 ( c )( 1 ), a sponsor or manager would therefore need to ensure that there are fewer than 100 beneficial owners .
As noted above , because funds utilizing crowdfunding sources are likely to subscribe more than 100 equity owners , it is not possible to rely on Section 3 ( c )( 1 ). Fortunately , it may still be possible for such a fund to qualify for the exemption found in Section 3 ( c )( 5 )( C ) and / or 3 ( c )( 6 ) under the Investment Company Act because the Fund is not engaged in the business of issuing redeemable securities or periodic payment plan certificates , and is primarily engaged in the business of purchasing or otherwise acquiring mortgages , other liens on , and to interests in real estate , directly and / or through one or more majority owned subsidiaries .
Hopefully the recent regulatory developments have the potential to significantly expand the pool of potential investors and reduce a fund sponsor ’ s burden . As illustrated , there are a handful of securities pitfalls and issues to be mindful of when raising capital for qualified opportunity funds . This is especially true when incorporating crowdfunding into the mix . Fund sponsors should always consult counsel to help best ensure that you are steering clear of any potential securities pitfalls when structuring their offerings .
Christopher J . Rogers ' practice focuses on corporate , securities , fund formation , mergers and acquisitions , real-estate finance , and other business transactions . His clients include developers , founders and entrepreneurs , growing and mature companies , private investment funds , and investment advisors . Rogers is chair of the State Bar of Arizona ’ s Business Law Section and chairelect of its Securities Regulation Section . He practices in Arizona , New Jersey , and New York .
Brett D . Siglin focuses his practice on a broad range of business law matters involving corporate structuring , joint ventures , bond financing , syndication of equity , contract negotiation , regulation and compliance , tax credits , property-tax exemptions , and real-estate acquisition and development . He served as an attorney advisor for the U . S . Department of Housing and Urban Development in Washington , D . C . for four years before entering private practice . Siglin practices in Arizona and Illinois .
OPPORTUNITYZONE . COM