An Explanation of the Investment Company Act

by David Jenyns on October 6, 2008

The Investment Company Act of 1940 makes companies responsible for the way they conduct investment business, giving them oversight and ensuring they operate under a series of rules. Holding company proxy solicitation is subject to Commission regulation.

The act restricts the amount of bonds and preferred stock, which a closed-end management holding company may issue. Generally speaking, a closed-end holding company may not issue senior securities in an amount equivalent to more than 50 percent of its assets. There are also limitations on the payment of dividends or purchases of the company’s own outstanding stock so long as senior securities are also outstanding. Without an order of the Securities and Exchange Commission, face-amount certificate companies are not permitted to issue preferred stocks.

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