RegulationsQuestion 47 of 110
Before a newly formed open-end fund may offer shares to the public, the Investment Company Act of 1940 requires it to have:
a.At least $100,000 of net assets and at least 100 shareholders
b.At least $1 million of net assets and a five-year performance record
c.A minimum of 500 shareholders and a state banking charter
d.Approval from FINRA's board of governors
Explanation
The Act sets a modest seed-capital requirement of $100,000 in net worth and a minimum of 100 shareholders before a public offering may begin, ensuring the fund is a genuine going concern. There is no performance-record or million-dollar requirement, and a new fund by definition has no track record. FINRA reviews underwriting arrangements but does not authorize the fund's existence.
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