Section 12D-1 Limit

DEFINITION of 'Section 12D-1 Limit'

A rule added to the Investment Company Act in 1964 to provide registered investment companies with conditional exemptions from provisions of the Act's Section 12 (d)(3). The provisions prohibit a registered investment company from purchasing or acquiring a security or business interest from someone who is a broker, dealer, underwriter, investment company adviser or investment adviser registered under the Investment Advisers Act of 1940.

The 12D-1 limit allows registered investment companies, on a case-by-case basis, to acquire securities from companies that are directly or indirectly involved in business activities referred to in Section 12 (d)(3). Securities may only be purchased for portfolios, and only from companies which derived no more than 15% of their total gross revenues over the previous three fiscal years from the specified businesses. In addition, the registered investment company and all affiliated companies cannot own more than 10% of the total outstanding voting stock of the portfolio company immediately following the securities acquisition.

BREAKING DOWN 'Section 12D-1 Limit'

Basically, the original rule was meant to prevent investment companies from investing in each other or otherwise merging. The 12D-1 limit allows investment for the purpose of adding the security to a portfolio. It limits the percentages that can be acquired to prevent the investment from becoming a subtle merger or takeover.

A registered investment company that claims the 12D-1 limit exemption must review its portfolio on a semi-annual basis to ensure its holdings are within compliance. If not, the company must sell or otherwise dispose of the security within 90 days. Section 12(d)(3) of the Investment Company Act exempts all investments by registered investment companies in certain businesses including small loan, factoring and finance companies.

RELATED TERMS
  1. Investment Company Act Of 1940

    Created in 1940 through an act of Congress, this piece of legislation ...
  2. Registered Investment Advisor - ...

    An advisor or firm engaged in the investment advisory business ...
  3. SEC Form N-5

    A filing with the Securities and Exchange Commission (SEC) required ...
  4. Management Investment Company

    A formal name for a company that sells and manages a portfolio ...
  5. Rule 147

    A rule that can be used by a company to raise funds without actually ...
  6. Investment Advisers Act of 194 ...

    A piece of legislation passed in 1940 that, among other things, ...
Related Articles
  1. Professionals

    Investment Company Act of 1940

    FINRA Series 6 Exam Study Guide - Investment Company Act of 1940. This section explains the Investment Company Act 1940 and also describes an Interested or Affiliated person.
  2. Professionals

    Investment Adviser Representative (IAR): Definition

    FINRA/NASAA Series 63 - Investment Adviser Representative (IAR): Definition. This section defines investment advisor representative and its exclusions.
  3. Professionals

    Who Must Register As An Investment Adviser?

    FINRA/NASAA Series 65 - Who must register as an investment adviser?
  4. Professionals

    Federal (SEC) vs. State Registration

    FINRA/NASAA Series 65 - Federal (SEC) vs. State Registration. In this section the value of client assets and sample questions.
  5. Professionals

    Investment Adviser: Initial Registration and Requirements

    FINRA/NASAA Series 63 - Investment Adviser: Initial Registration and Requirements. In this section Investment Adviser initial registration, financial requirements, update and renewal.
  6. Professionals

    The Uniform Securities Act (USA) - Definitions Part 4

    FINRA/NASAA Series 63 - The Uniform Securities Act (USA) - Definitions Part 4. In this section definitions of guaranteed, institutional investor and investment advisor representative.
  7. Professionals

    What You Must Know To Pass The Series 6 Exam

    Learn what you need to know about the creation and components of a mutual funds to pass the Series 6 exam.
  8. Professionals

    State Registered Investment Advisers

    FINRA/NASAA Series 65 - State Registered Investment Advisers. In this section registering with the state and exclusions.
  9. Professionals

    Registration and Licensing

    Registration and Licensing
  10. Professionals

    Investment Adviser: Definition

    FINRA/NASAA Series 63 - Investment Adviser: Definition. In this section investment adviser definition, exclusions and additional information.
RELATED FAQS
  1. The de Minimis clause for investment advisers means:

    A. An investment adviser must register with the state if it holds less than $25 million in assets.B. An investment adviser ... Read Answer >>
  2. Under the Uniform Securities Act, the registration of an investment adviser results ...

    The correct answer is b. Clerical employees do not need to be registered as investment adviser representatives, while solicitors, ... Read Answer >>
  3. Under the Uniform Securities Act, which of the following advisers is NOT defined ...

    The correct answer is b). Federal covered advisers include those who manage client assets of $25,000,000 or more or who advises ... Read Answer >>
  4. What is an unregistered security scam?

    Each year, millions of Americans lose money to con artists who convince them to invest in companies through "private offerings" ... Read Answer >>
  5. How does price elasticity affect my stock purchase decisions?

    Explore the many possible corporate positions which may, depending on the size and structure of a business, be responsible ... Read Answer >>
  6. According to the USA, it is unlawful for a person to offer to sell a security in ...

    a. the security is registered with Federal Reserve. b. it is a federal covered security, is exempted from registration, or ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center