Legal Definitions - Investment Company Act

The Investment Company Act is a federal law passed in 1940 to prevent financial misconduct and abuses by regulating investment company activities and transactions. The act requires investment companies to register and prohibits transactions by unregistered companies. It also regulates affiliations of directors, officers, and employees, and bars changes in investment policy without shareholder approval.

• An investment company that manages mutual funds must register with the Securities and Exchange Commission (SEC) under the Investment Company Act.
• An investment company cannot change its investment policy without first obtaining approval from its shareholders.
• An investment company cannot engage in certain transactions with its affiliated persons or underwriters.

These examples illustrate how the Investment Company Act regulates investment companies to prevent financial misconduct and protect investors. By requiring registration, regulating affiliations, and ensuring shareholder approval for changes in investment policy, the act aims to promote transparency and accountability in the investment industry.