The 3(c)(1) limit counts beneficial owners, not names on the register, and two look-through rules can put a fund well over 100 while its investor list shows 80.
A fund relying on section 3(c)(1) may have no more than 100 beneficial owners, and the count is not the investor register. Exclude knowledgeable employees, count each other investor once, and look through any investment-company investor holding 10 per cent or more of the voting securities and any vehicle formed to invest in the fund. An illustrative fund with 80 record holders has 119 beneficial owners, 19 over the limit, because one fund of funds at 14 per cent counts as its 38 investors and a purpose-built LLC as its 7 members.
Worked in full in The Private Fund Compliance Officer by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The 100-owner limit is a condition of the exemption, so an overcount at one close puts the whole fund at risk, not just the last subscription. The count is also dynamic: it changes every time an investor's percentage crosses 10 per cent, and every time a new investor turns out to be a vehicle rather than a person. That is why the compliance officer recomputes it at each close rather than reading it off the register.
| Investor group | Record holders | Stake | Treatment |
|---|---|---|---|
| Individual investors | 70 | One each | |
| of which knowledgeable employees | 4 | Excluded, Rule 3c-5 | |
| Pension plans, endowment, insurer | 6 | One each | |
| Fund of funds X, relying on 3(c)(7), 38 investors | 1 | 14.0% | Look through: 10% or more |
| Fund of funds Y, relying on 3(c)(1), 25 investors | 1 | 6.0% | One: below 10% |
| LLC formed to invest in the fund, 7 members | 1 | 3.0% | Look through: formed for the purpose |
| Single family office | 1 | One | |
| Register | 80 |
Limited partnership interests are generally treated as voting securities for the 10 per cent test, so the stake is the investor's share of the interests outstanding.
Beneficial owners = individuals − knowledgeable employees + entities counted as one + Σ holders of each looked-through entity ≤ 100
In Excel, with record holders in B, the stake in C, the investor's own holder count in D and a flag in E for "investment company" or "formed for the purpose": =IF(OR(AND(E2="IC",C2>=10%),E2="purpose"),D2,B2) in F for each line, then sum column F, subtract the knowledgeable employees and compare with 100.
Step 1: individuals. 70 individuals, of whom 4 are knowledgeable employees of the manager. 70 − 4 = 66.
Step 2: operating institutions. A pension plan, an endowment or an insurer is not an investment company and was not formed to invest in the fund: 6 investors, 6 owners.
Step 3: the 10 per cent look-through. Fund of funds X would be an investment company but for 3(c)(7) and holds 14.0 per cent, so its 38 investors are counted instead of the fund: 38. Fund of funds Y is also a private fund but holds 6.0 per cent, below 10, so it counts as one.
Step 4: vehicles formed for the purpose. The LLC exists to hold this fund interest for 7 friends. Whatever its stake, a vehicle formed for the purpose of investing in the fund is looked through, so it counts as 7. The family office invests across many assets and counts as one.
Step 5: total. 66 + 6 + 38 + 1 + 7 + 1 = 119 beneficial owners on a register of 80. The two look-throughs replace 2 names with 45 owners, a net addition of 43; the fund is 19 over the limit.
| Case | Count | Headroom to 100 |
|---|---|---|
| Base case | 119 | −19 |
| X capped at 9.5% | 82 | +18 |
| X capped at 9.5%, Y raised to 10% | 106 | −6 |
| Base, knowledgeable employees counted (mistake) | 123 | −23 |
| X capped at 9.5%, LLC counted as one (mistake) | 76 | +24 |
| Record holders only (mistake) | 80 | +20 |
The usual fix is a ticket cap in the subscription documents: fund of funds X limited to 9.5 per cent counts as one, and the fund is at 82 with 18 to spare. But the cap has to hold for every investment-company investor. If Y then takes 10 per cent at a later close, its 25 investors replace it and the count goes to 106. A fund near the limit should run this table before accepting any ticket that would take a fund investor to 10 per cent.
The same look-through logic, applied to plan investors and a different threshold, drives the ERISA 25 per cent test. A fund that would rather avoid the count altogether relies on 3(c)(7) and tests each investor as a qualified purchaser instead.
Illustrative only, not legal advice. The count has further rules, including on transfers by gift or bequest, integration with other funds of the same manager and the 250-owner limit for qualifying venture capital funds of no more than 10,000,000; counsel should confirm the treatment of any investor near the line.
The book's investor onboarding record and testing plan are among the working documents with the free workbook for this case.
When the investing fund owns 10 per cent or more of the fund's outstanding voting securities and is itself an investment company, or would be but for 3(c)(1) or 3(c)(7). Below 10 per cent it counts as one. Here a fund of funds at 14 per cent counts as its 38 investors; at 9.5 per cent it would count as one, a difference of 37.
No. Rule 3c-5 excludes knowledgeable employees of the fund's manager, and certain related holders, from the count. In this example four employees invest, so 70 individuals count as 66. Counting them by mistake would take the base count from 119 to 123; when a fund is near the line, the exclusion is often what keeps it under.
A qualifying venture capital fund, with no more than 10,000,000 of aggregate capital contributions and uncalled committed capital (a figure the statute has the SEC index for inflation every five years), may have up to 250 beneficial owners instead of 100. The same counting rules apply, including the look-through for investors holding 10 per cent or more.
This article is one calculation from The Private Fund Compliance Officer. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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