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Investment Company Act of 1940 is Federal legislation, which regulates the operation and registration of investment companies.
An investment company is a type of investment that invests in a portfolio of assets; investors in an investment company own a percentage of all the companies that make up the portfolio. There are 3 types of investment companies that were classified by the Investment Company Act of 1940: Face Amount Certificate Companies, Unit Investment Trusts and Management Companies (Open End and Closed End). The Act of 1940 not only classified investment companies, it also created the rules that govern them. Three of the criteria set forth in the Act are: an investment company must have a minimum of $100,000 in net assets and 100 shareholders to form and it must be diversified i.e.: it must adhere to the 75-5-10 rule.