Although one hundred was chosen arbitrarily, it has served as a benchmark in deciding whether there is sufficient public interest in a company that warrants federal regulation. The 1940 Act defines “person” as “a natural person or a company,” and “a company” is defined broadly to include “a corporation, a partnership, an association, a joint-stock company, a trust, a fund, or any organized group of persons whether incorporated or not.” This exemption excludes from the 1940 Act private companies for which there are no significant concerns of public interest. Section 3(c)(1) exempts any private issuer whose outstanding securities are beneficially owned by no more than one hundred persons. The Investment Company Act of 1940 (the 1940 Act) provides a few exemptions, one of which is Section 3(c)(1). Thus, it is paramount for attorneys to count a company’s investors accurately. To put it in another way, counting investors decides whether a company needs to spend an additional six figures or more annually to comply with investment company regulations. Its outcome decides whether a company will be exempt from investment company regulations. For example, counting investors is a legal and mathematical question of great importance.
Unfortunately, attorneys still need to perform some calculations, especially when practicing securities law. Many attorneys choose law so they can be done with math.
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