Setting up an investment company in the United States means forming a legal entity, claiming the right federal exemptions, registering (or filing an exempt report) as an investment adviser, filing a notice for your private offering, and building a compliance program before you accept a dollar of outside capital. The order matters. An investment company is not just a business; it is a vehicle that holds other people’s money, and every step sits inside a body of law that treats it that way.
Pick the Right Legal Entity
Your entity choice decides how the fund is taxed, who can invest, and how much flexibility you have to run it. Three structures dominate.
A limited liability company is the most common choice for smaller funds. The IRS treats a multi-member LLC as a partnership by default, so profits and losses flow through to each member’s personal return instead of being taxed first at the entity level, and members generally keep personal assets shielded from the fund’s debts and legal claims.1Internal Revenue Service. Limited Liability Company (LLC)
A C-corporation allows unlimited shareholders and a permanent capital structure, which is why larger funds seeking institutional investors or an eventual public listing default to it. The trade-off is double taxation: the corporation pays tax on profits, and shareholders pay again on dividends.2Internal Revenue Service. Forming a Corporation
A limited partnership is the workhorse for hedge funds and private equity. A general partner manages the fund and bears unlimited liability; limited partners contribute capital and have no management authority. That separation is what lets the GP charge management fees and carried interest while capping LP risk at the amount invested.
Open-End or Closed-End
Beyond entity type, decide whether the fund will be open-end or closed-end. An open-end fund continuously issues new shares and must buy them back at net asset value when investors want out, which demands high portfolio liquidity.3SEC Historical Collection. Repurchases and Redemptions of Investment Company Shares A closed-end fund issues a fixed number of shares through an initial offering, and those shares then trade on a secondary market at prices that can sit above or below the fund’s actual asset value.
Claim an Exemption From the Investment Company Act
The Investment Company Act of 1940 imposes extensive governance rules, disclosure requirements, and balance-sheet constraints on registered investment companies.4Legal Information Institute (LII) / Cornell Law School. Investment Company Act Mutual funds and publicly traded funds go through that full registration. Most private funds do not. They rely on one of two statutory exemptions, and getting this right is foundational: a fund that accidentally becomes an unregistered investment company can be forced to restructure or shut down.
The 100-Investor Exemption Under 3(c)(1)
Section 3(c)(1) excludes any issuer whose securities are held by no more than 100 beneficial owners, as long as the fund does not make a public offering. Most startup and emerging-manager funds rely on this exemption. The cap is strict; cross 100 investors and you either register under the Act or restructure. A qualifying venture capital fund gets a slightly higher ceiling of 250 beneficial owners, provided it has no more than $10 million in total capital commitments.5Office of the Law Revision Counsel. 15 USC 80a-3 – Definition of Investment Company
The Qualified Purchaser Exemption Under 3(c)(7)
Section 3(c)(7) drops the headcount cap entirely but restricts the fund to qualified purchasers: individuals or family-owned companies holding at least $5 million in investments, or institutions managing at least $25 million on a discretionary basis.6Federal Register. Self-Regulatory Organizations; FINRA; Order Approving Proposed Rule Change No public offering is allowed here either. This is the common route for larger hedge funds and institutional vehicles.
Line Up Your Securities Offering Exemption
Even with an Investment Company Act exemption in hand, the securities you issue to investors still need their own exemption from Securities Act registration. Most private funds use Regulation D, which generally limits sales to accredited investors.
An individual qualifies as accredited with either a net worth above $1 million (excluding a primary residence) or income above $200,000 individually — $300,000 with a spouse or partner — in each of the two most recent years, with a reasonable expectation of hitting that level again.7U.S. Securities and Exchange Commission. Accredited Investors Under Rule 506(b) you may also admit up to 35 non-accredited investors per 90-day period, but the disclosure obligations climb substantially when you do.8U.S. Securities and Exchange Commission. Exempt Offerings
File Formation Documents and Get an EIN
Every LLC and corporation must designate a registered agent with a physical street address in the state of formation to accept legal notices on the entity’s behalf. You then file the foundational document with the Secretary of State: Articles of Incorporation for a corporation, or a Certificate of Formation (sometimes called Articles of Organization) for an LLC. The filing needs a unique entity name, the registered agent’s details, and a purpose statement broad enough to cover various investment activities without frequent amendments.
Internal rules come next. For an LLC that means an Operating Agreement; for a corporation, Bylaws. These documents spell out voting rights, how investors are admitted or removed, how profits and losses are allocated, and what happens on wind-down. For a fund, the Operating Agreement also typically addresses management fees, carried interest, lockup periods, and withdrawal procedures. Disputes between fund managers and investors almost always trace back to ambiguous governance terms, so this document deserves real drafting effort.
Once the state filing is accepted, apply for an Employer Identification Number from the IRS. You can apply online, by fax, or by mail using Form SS-4.9Internal Revenue Service. Instructions for Form SS-4 (12/2025) The application requires the name and taxpayer identification number of a responsible party, usually the managing member or general partner. The EIN is what you will use to open bank and brokerage accounts, file federal tax returns, and complete regulatory registrations.
You also need subscription agreements before accepting outside capital. Each investor signs one that records the amount invested, their representations about accredited or qualified purchaser status, risk disclosures, and the terms under which the subscription can be accepted or rejected. The signed agreements satisfy securities-law disclosure requirements and create a paper trail proving each investor was properly qualified at the time of investment.
Register as an Investment Adviser
If you manage money for others for compensation, you are almost certainly an investment adviser under federal law, and you need to either register or qualify for an exemption. Where you register depends on how much you manage.
SEC or State Registration
An adviser with $110 million or more in assets under management must register with the SEC, unless a specific exemption applies. Between $100 million and $110 million there is a buffer zone where you may register with the SEC but are not yet required to. Below $100 million, you generally register with your home state’s securities regulator. Once SEC-registered, you do not switch back to state registration unless your assets drop below $90 million.10eCFR. 17 CFR 275.203A-1 – Eligibility for SEC Registration
The Exempt Reporting Adviser Route
Two categories of advisers can skip full registration and file abbreviated reports instead. Advisers who exclusively manage venture capital funds qualify under Section 203(l) of the Investment Advisers Act. Advisers who manage only private funds and have less than $150 million in total U.S. assets under management qualify under Section 203(m). Both still file portions of Form ADV electronically through the IARD system and pay fees, but their ongoing disclosure and compliance obligations are lighter.11eCFR. 17 CFR 275.204-4 – Reporting by Exempt Reporting Advisers
Form ADV
Registration centers on Form ADV, filed through the Investment Adviser Registration Depository (IARD).12Investor.gov. Investment Adviser Registration Depository (IARD) Part 1 collects data about ownership, business practices, assets under management, and any disciplinary history of firm personnel.13U.S. Securities and Exchange Commission. Form ADV General Instructions Part 2A is the firm brochure, a narrative document covering investment strategies, fee structures, conflicts of interest, disciplinary events, and brokerage practices. You must deliver the brochure to every client before or at the time you enter into an advisory agreement, and provide an updated version or a summary of material changes within 120 days after each fiscal year-end.14U.S. Securities and Exchange Commission. Part 2 of Form ADV Form ADV must be amended annually within 90 days of your fiscal year-end and updated promptly whenever material information changes.
Individuals who provide investment advice on behalf of the firm typically also need to pass a qualifying examination such as the Series 65, or the Series 66 combined with the Series 7. Requirements vary by state.
File Form D and State Blue Sky Notices
Any fund relying on a Regulation D exemption — Rule 506(b), Rule 506(c), or Rule 504 — must file a Form D notice with the SEC within 15 days after the first sale of securities in the offering. The filing is submitted electronically through EDGAR, and the SEC does not charge a fee for it.8U.S. Securities and Exchange Commission. Exempt Offerings
Missing the 15-day window does not automatically destroy the federal exemption. The SEC treats a late or missing Form D as a technical violation of Regulation D rather than a disqualifying event under Rule 506 itself. The consequences are still real: the SEC can bring enforcement actions and impose civil penalties, noncompliance can trigger rescission rights for investors, and sophisticated investors routinely demand proof of prior regulatory compliance before committing capital.15U.S. Securities and Exchange Commission. Consequences of Noncompliance
Most states require their own notice filing, usually called a blue sky filing, before you can sell securities to residents there. Deadlines, fees, and procedures vary. Many states accept Form D copies and collect fees through the Electronic Filing Depository (EFD). Some charge a flat fee, others a percentage of the offering. Missing a state filing can trigger separate state enforcement, so build a checklist for every state where you plan to accept investors.
What the Filings Will Cost
Entity formation fees vary by state and entity type but generally fall between $50 and $500 for standard processing. Expedited processing costs more. Most states also require an annual or biennial report, with fees ranging from $0 in a handful of states to over $800 in the most expensive jurisdictions. Missing that report can result in administrative dissolution of the entity, an avoidable disaster for a fund with outside investors.
Investment adviser registration goes through IARD, which lets you submit Form ADV and pay fees to the SEC and multiple states in one place. FINRA, which operates the system, charges federal fees based on AUM:
- Less than $25 million: $40 initial, $40 annual
- $25 million to $100 million: $150 initial, $150 annual
- $100 million or more: $225 initial, $225 annual
Those are the federal FINRA fees only.16U.S. Securities and Exchange Commission. Electronic Filing for Investment Advisers on IARD – IARD Filing Fees State registration fees are separate, run from under $100 to several hundred dollars per state, and each investment adviser representative may carry an added per-person fee. Advising clients in multiple states can push the combined state total well past the federal cost.
Open Accounts and Accept Investor Capital
With the entity formed and filings submitted, open a business bank account and a corporate brokerage account in the entity’s name. Financial institutions will ask for the approved formation documents, your EIN, and your Operating Agreement or Bylaws. They will also run Know Your Customer checks on every individual who owns a significant stake or has authority over the accounts, including identity verification, background screening, and sanctions-list checks.
The formal transfer of capital is governed by the subscription and capital contribution agreements. These specify how much each investor is contributing, what ownership percentage they receive, and what their tax basis will be. Wires or checks from each investor’s personal account should go directly into the fund’s business account. Routing money through an intermediary or a manager’s personal account, even briefly, risks piercing the liability protection the entity was designed to provide.
Once funded, the fund can execute its strategy. Keep detailed accounting records from day one: every trade, every fee, every distribution. Those records support tax reporting and your obligation to give investors accurate performance data. Sloppy bookkeeping at launch compounds, and cleaning it up retroactively is expensive and sometimes impossible.
Stand Up Ongoing Compliance
Formation is a one-time event. Compliance is permanent, and the consequences for ignoring it range from fines to revocation of registration.
Chief Compliance Officer and Written Policies
Every SEC-registered investment adviser must designate a Chief Compliance Officer, a supervised person responsible for administering the firm’s compliance program. Under Rule 206(4)-7 of the Investment Advisers Act, the firm must adopt written policies and procedures reasonably designed to prevent violations of federal securities laws, and review those policies at least annually for adequacy and effectiveness. The SEC expects the policies to address portfolio management, trading practices, personal trading by firm personnel, accuracy of disclosures, safeguarding of client assets, recordkeeping, marketing, valuation, privacy, and business continuity.17U.S. Securities and Exchange Commission. Compliance Programs of Investment Companies and Investment Advisers At a startup fund, the CCO is often the founder. That works in the early stages, but the person making investment decisions is also policing them, and independent compliance support becomes important as the fund grows.
The Custody Rule
If you or the fund can access client funds — which includes serving as the general partner of a limited partnership or managing member of an LLC that holds investor capital — you are deemed to have custody under Rule 206(4)-2. Client assets must be held with a qualified custodian such as a bank or registered broker-dealer. The custodian must send account statements directly to investors at least quarterly, or the adviser must arrange for an independent public accountant to verify all client funds and securities through a surprise annual examination.18U.S. Securities & Exchange Commission. Custody of Funds or Securities of Clients by Investment Advisers Most fund managers satisfy the rule by using a third-party custodian that delivers statements on its own.
Annual Updates and Recordkeeping
Amend Form ADV within 90 days of your fiscal year-end and promptly whenever material information changes.13U.S. Securities and Exchange Commission. Form ADV General Instructions State annual reports for the business entity follow their own schedule. The firm must also maintain books and records for the periods specified in the Advisers Act regulations, generally five years for most documents, with the first two years in an easily accessible location. Regulators do show up for examinations, and the fastest way to turn a routine exam into an enforcement action is missing or disorganized records.