November 6, 2026 · 7 min read
Section 3(c)(1) vs Section 3(c)(7) Funds: Key Differences
Two legal routes private funds use to avoid the rules for mutual funds. How many people can invest, who qualifies and what it means for you.
- Private equity & funds
3c1 vs 3c7 comes down to who may invest in a private fund. Section 3(c)(1) of the Investment Company Act lets a fund skip SEC registration if it has no more than 100 owners. Section 3(c)(7) has no fixed cap but takes only qualified purchasers, people with at least $5 million in investments. Smaller funds use 3(c)(1). Funds raising from wealthier investors use 3(c)(7).
If you invest in a private fund or an SPV, the exemption decides whether you can get in. A 3(c)(1) fund usually takes accredited investors. A 3(c)(7) fund needs the higher qualified purchaser status. Either way, the fund sits outside the rules for mutual funds, so you get less disclosure and fewer protections.
100
Owners a 3(c)(1) fund can have, or 250 for a small venture fund
$10M → $12M
Size limit for that small venture fund, raised for inflation
$5M
Investments a person needs to be a qualified purchaser for a 3(c)(7) fund
2,000
Holders of record that force SEC reporting, the practical cap on a 3(c)(7) fund
3c1 vs 3c7 Funds: What Is the Difference?
The table compares the two exemptions on definition, investor limits, who can invest, performance fees, who uses each, legal and tax treatment, risk, liquidity and a typical example.
3(c)(1) caps the number of investors. 3(c)(7) raises the wealth bar for each investor and drops the cap
As of November 2026 · 15 U.S.C. 80a-3, 80a-2(a)(51), 78l(g); 17 CFR 230.501, 275.205-3; SEC Order IA-6961 (04.28.2026); SEC press release 2024-102. US rules.
3c1 vs 3c7 Exemption: What Each Section Requires
The Investment Company Act of 1940 governs funds that sell to the public, such as mutual funds. A registered fund faces strict rules on disclosure, borrowing and fees. Section 3(c) lists the funds that fall outside the definition of an investment company. Private funds use two of those exceptions (15 U.S.C. 80a-3).
Section 3(c)(1): The 100-Owner Fund
A fund qualifies if no more than 100 persons own it and it makes no public offering. A company that invests counts as one owner. If it holds 10% or more of the fund and is itself a fund, its own investors are counted instead. A qualifying venture capital fund can have 250 owners, as long as it stays within $12 million of capital. The SEC raised that limit from $10 million on August 21, 2024 (SEC, 2024).
Section 3(c)(7): The Qualified Purchaser Fund
A fund qualifies if every owner is a qualified purchaser when they buy in and it makes no public offering. A person qualifies with at least $5 million in investments. Most institutions need $25 million invested on a discretionary basis (15 U.S.C. 80a-2).
The Act sets no cap on investors here. Another law does the work. Once a company has more than $10 million in assets and 2,000 holders of record, it must register with the SEC and file public reports (15 U.S.C. 78l). Most 3(c)(7) funds stay under that count.
Who Can Invest: Accredited Investor, Qualified Client and Qualified Purchaser
Three tests come up when you invest in a private fund. Each one sits higher than the last. Which ones apply depends on the exemption and on whether the manager charges a share of profits.
- Accredited investorNet worth above $1 million without your home, or income above $200,000 ($300,000 with a spouse) in each of the last two years (Rule 501). The usual entry ticket for a 3(c)(1) fund. See accredited investor.
- Qualified clientAt least $1.4 million managed by the adviser, or net worth above $2.7 million without your home. Needed when a manager charges carried interest. These amounts rose from $1.1 million and $2.2 million on June 29, 2026 (SEC, 2026).
- Qualified purchaserAt least $5 million in investments for a person. Required for every investor in a 3(c)(7) fund. See qualified investor for how the tests compare.
Most private funds charge carry. So in practice, a 3(c)(1) fund asks you to be both accredited and a qualified client. A 3(c)(7) fund only needs you to be a qualified purchaser, because that status covers the qualified client test (Rule 205-3).
3c1 and 3c7 Parallel Funds: Why Managers Run Both
Choosing 3c1 or 3c7 is mostly a question of who the investors are. A manager with a mix of investors can run two funds side by side. Both invest in the same deals on the same terms. The Act says the SEC will not treat a 3(c)(1) fund and a 3(c)(7) fund as a single issuer when it counts owners (15 U.S.C. 80a-3(c)(7)(E)).
- Fund A, under 3(c)(1)95 accredited investors who are also qualified clients (illustrative)
- Fund B, under 3(c)(7)300 qualified purchasers and institutions (illustrative)
- TogetherEach fund passes its own test. Each investor holds an interest in one fund only.
The rule has a limit. It does not make anyone a genuine qualified purchaser or a genuine owner. Each fund still has to meet its own conditions, investor by investor.
3(c)(1) vs 3(c)(7) Pros and Cons: A Verdict on Each
Section 3(c)(1)
- For
- Open to accredited investors, a wider group. Simple to set up, which suits single-deal SPVs and first funds.
- Against
- Hard cap of 100 owners, or 250 for a small venture fund. Each transfer must be checked against the cap. A manager charging carry needs qualified clients too.
Verdict: 3(c)(1) suits a small fund or a single-deal vehicle with a limited investor list. It opens the door to more individuals. The price is a ceiling on how many can come in.
Section 3(c)(7)
- For
- No statutory investor cap, so a fund can raise from hundreds of investors. One test covers both entry and performance fees.
- Against
- Only qualified purchasers can invest, a much smaller group. Every buyer of a stake must also qualify, which narrows any resale.
Verdict: 3(c)(7) suits a larger fund raising from wealthy people and institutions. It trades a smaller pool of eligible investors for room to grow. Managers often pair it with a 3(c)(1) fund to reach both groups.
Section 3(c)(1) limits how many people can invest. Section 3(c)(7) limits who can invest. Your own status decides which fund you can join.
3c1 vs 3c7: What Each Means for You as an Investor
When you invest in a private fund or SPV, the subscription agreement asks you to confirm your status. A 3(c)(1) vehicle asks whether you are accredited and often whether you are a qualified client. A 3(c)(7) vehicle asks whether you are a qualified purchaser. Your answers are legal statements, so check the numbers before you sign.
Many single-company vehicles are small. That makes 3(c)(1) a common fit for an SPV. Axevil sets up a separate Delaware SPV for each deal, managed by Axevil Capital, LLC. The fund usually files a Form D when it sells interests under Regulation D. Most private funds are partnerships, so you receive a K-1 for your share of the results.
Common Mistakes
- Treating accredited and qualified purchaser as the sameThe qualified purchaser bar is $5M in investments. Many accredited investors do not meet it.
- Counting your homeAccredited and qualified client net worth tests leave out your primary residence.
- Using old thresholdsThe qualified client amounts changed on June 29, 2026. Check the current figures.
- Expecting to sell easilyTransfers need the manager’s consent and a buyer who passes the same test.
- Reading the exemption as approvalNeither exemption means the SEC has reviewed the fund. It means the fund is outside the registered-fund rules.
The Terms This Page Uses
- Investment Company Act
- The 1940 US law that regulates funds sold to the public, such as mutual funds.
- Section 3(c)(1)
- The exception for a fund with no more than 100 owners, or 250 for a qualifying venture fund, and no public offering.
- Section 3(c)(7)
- The exception for a fund owned only by qualified purchasers, with no public offering.
- Qualifying venture capital fund
- A venture fund with no more than $12M of capital, allowed 250 owners under 3(c)(1).
- Beneficial owner
- The person who actually holds the economic interest, counted toward the 100-owner limit.
- Accredited investor
- An investor who meets the SEC’s income, wealth or credential tests in Rule 501.
- Qualified client
- An investor a manager may charge a performance fee: $1.4M with the adviser or $2.7M net worth since June 29, 2026.
- Qualified purchaser
- A person with at least $5M in investments, or an institution investing $25M on a discretionary basis.
- Parallel funds
- Two or more funds run side by side that invest in the same deals, each under its own exemption.
- Holder of record
- An owner listed on the issuer’s books, counted for the 2,000-holder reporting trigger.
- Form D
- A short notice filed with the SEC after a private offering under Regulation D.
What People Ask About 3(c)(1) and 3(c)(7) Funds
Not under the Act itself. Section 3(c)(1) only caps the number of owners. Funds still need an exemption to sell their interests, usually Regulation D, which in practice limits most of them to accredited investors.
It loses the exception and would have to register as an investment company or find another exemption. That is why managers check every transfer and new subscription against the count.
Usually yes in practice, since $5M in investments clears the $1M net worth test for most people. The tests are separate, though, and each fund asks you to confirm the one it relies on.
No. The fund itself is outside the Investment Company Act. It usually files a Form D notice. Its manager may register as an adviser or report as an exempt reporting adviser.
The same way. The exemption has no tax effect. Most private funds are partnerships that pay no income tax themselves and pass results to investors on a K-1.
Where Every Rule on This Page Comes From
Rules and thresholds were last checked on November 6, 2026. All rules described are US federal rules. Dollar thresholds for qualifying venture funds and qualified clients are adjusted for inflation about every five years.
- 01Cornell LII · 15 U.S.C. 80a-3Current statuteInvestment Company Act §3(c)(1) and §3(c)(7), including the 100 and 250 limits and the parallel-fund rule in (c)(7)(E)
- 02US Securities and Exchange Commission08.21.2024Press release 2024-102 — Rule 3c-7 raises the qualifying venture fund limit to $12M
- 03Cornell LII · 15 U.S.C. 80a-2Current statuteDefinition of qualified purchaser — $5M and $25M in investments
- 04Cornell LII · 15 U.S.C. 78lCurrent statuteExchange Act §12(g) — 2,000 holders of record and $10M in assets
- 05Cornell LII · 17 CFR 230.501Current ruleAccredited investor net worth and income tests
- 06Cornell LII · 17 CFR 275.205-3Current ruleQualified client and performance fees; qualified purchasers qualify
- 07US Securities and Exchange Commission04.28.2026Order IA-6961 — qualified client amounts $1.4M and $2.7M, effective 06.29.2026
This page explains how a market works. It is not investment advice, not a recommendation of any security, strategy or company, and not an offer to sell or a solicitation to buy anything. Private companies may never list or be acquired, positions in them can be illiquid for years, and the entire amount invested can be lost. Figures are accurate as of the dates shown and change. Requirements for investor status, and the tax treatment of a private holding, differ by jurisdiction — the jurisdiction is named wherever this page discusses either. Prepared by the AXEVIL Capital research team.
What closed on the private market in the past two weeks
The rounds that priced, the tender offers that opened and the listings that filed — with the structure of each deal and the date on every figure. Written by the team that reads the paperwork.
Where to go from here
Securities lawWhat Is an Accredited Investor? Definition, How It Works and ExamplesAccredited investor meaning: a person or entity that passes an SEC test on income ($200K), net worth ($1M) or a securities license and may buy private deals.
Securities lawWho Is a Qualified Investor? Definition, Rules and ExamplesWho is a qualified investor? The answer depends on the rule: accredited investor, qualified client, qualified purchaser or EU professional client, compared.
Securities lawWhat Is Regulation D? Definition, How It Works and ExamplesWhat is Regulation D? The SEC rules that let companies sell securities without registration. Rules 504, 506(b) and 506(c), limits and a worked example.