Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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Which of the following is a requirement for being considered a Regulated Investment Company?

Must have at least 100 shareholders
Must distribute 100% of net income
Must have a physical office in the U.S.
Must be open to foreign investors

The correct answer is: Must have at least 100 shareholders

A regulated investment company (RIC) must meet certain statutory requirements to maintain its status and benefit from favorable tax treatment. One crucial requirement is having at least 100 shareholders. This provision helps ensure that RICs are not merely controlled by a small group of investors, thus supporting the goal of promoting the availability of broad-based investment options for the public. While distributing income and engaging in operations are important for any investment company, the specific requirement of having 100 shareholders is foundational to the classification of a RIC. It aligns with regulations aimed at ensuring diversification and reducing the potential for manipulation or control by a limited number of investors. Additional parameters include maintaining a diversified portfolio, but the stipulation regarding the number of shareholders is particularly significant as it directly relates to the nature of the entity as a collective investment vehicle designed for a larger group of investors.