Determination of whether an entity is an investment company
An investment company is a separate legal entity whose primary business activity for the period is investing.
All of the following must apply for an entity's primary business activity to be investing:
The expressed business purpose is to be an investment company that holds investments for current income, capital appreciation, or both.
The entity has no substantive activities other than its investment activities and no significant assets or liabilities other than those related to its investment activities, except for operating activities related to services provided to investment companies.
The entity does not obtain, or have the objective of obtaining, benefits from its investments that are unavailable to unrelated non-investor entities and that are not normal benefits attributable to a ownership interest (such as dividends). Such benefits might include, for example: access to processes, intangible assets or technology of the investee; guarantees provided by an investee to benefit the investor; or other transactions that are not at fair value.
The entity or its affiliates are not involved in the day-to-day management of investees, affiliates of investees, or other investment assets. However, that requirement may be met if management of the entity or its affiliates is represented on the boards of directors of investees or affiliates of investees, or provides limited assistance to management of investees or affiliates of investees for a short period.
For each investment, the entity has an exit strategy that involves the transfer of the entity's ownership interest to unrelated third parties. An exit strategy includes methods of exiting the investment and the time when this is expected to occur. For example, this might be expressed as a time period or when certain conditions or targets have been met.