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Keeping It in the Family: A Closer Look at the Registration Requirements for Family Offices

Fund attorney nycAs we have previously discussed on this blog, the Securities and Exchange Commission (SEC) has adopted a new family office exclusion from the Investment Advisers Act of 1940 (Advisers Act.  The new rule excludes single family offices from all Advisers Act regulation. To qualify, the family office must only serve “family members” of one and the same family, key employees of the family office itself, and charities funded solely by the family. Family offices must also be “exclusively controlled” by family members and/or family entities.

Earlier this year, the SEC released additional guidance regarding the specific requirements for family offices seeking to take advantage of the new exemption. Below are some important points to consider:

Ownership and Control

The SEC has indicated that a board of directors with seven directors, of which four are family members and three are non-family members, would satisfy the ownership and control requirement so long as there are no special shareholder agreements or other arrangements in place that would give an outsider control over the management or policies of the family office.

The SEC has also advised that the right to appoint, terminate, or replace board members, by itself, does not satisfy the “exclusively controlled” standard, unless the governing documents of the family office provide that matters relating to the management or policies of the family office must be decided by family members or family entities.

Family Members

The SEC has confirmed that the new rule does not include family clients or in-laws.  An individual that is part of a same-sex couple that qualifies as a domestic partnership under state law, however, would be a spousal equivalent under the rule.

Non-Advisory Services

The SEC has indicated that non-advisory services, such as catering, tax filing, accounting or housekeeping, provided to non-family members will not affect the determination of whether the office is a family office under the rule. However, it cautions family offices to consider carefully whether any of the services they provide to non-family members are advisory services that make it subject to the Advisers Act.

How We Can Help Ensure Compliance

Eckerle Law offers a highest-quality and cost-effective alternative to the traditional law firm model for a wide variety of transactional and regulatory matters serving all your business law needs. Our experienced attorneys also provide a full range of compliance services for investment advisers, offering compliance tools that are tailored to fit the ever changing regulatory landscape as well as your business needs.

If your company would like to strengthen its business practices, please contact us today so we can leverage our experience to create real-life business and legal solutions to help your business thrive.