State Exemptions From Registration as an Investment Adviser

Determining Which Laws Apply

If you are (i) in the business (ii) of giving investment advice (iii) for compensation, you meet the definition of an “investment adviser,” so if you cannot find an exemption from registration as such, you must register as an investment adviser, obtain all the relevant licenses, and comply with all the other requirements of RIAs.

Assuming you meet the definition above, the initial threshold question is to determine which laws apply to you: (a) one or more states or (b) federal law. This question is dependent on where you have any place of business or more than 5 clients and your assets under management.

Assets under management:

• Greater than $100 million. Look to federal exemptions.
• Less than $25 million. Look to State exemptions
• Between $25 million and $100 million. It depends on the states and the number of clients in that state. Generally, if the state requires that you file truncated Form ADV, you look to State law, otherwise, you look to federal law.

Note: There are some exceptions to the above rule if, for example, you have places of businesses in 15+ states. Consult legal counsel. Additionally, if you have places of business in more than one state OR more than 5 clients in a state, you may be required to comply with the laws of multiple states.

Counting Clients. Generally, each fund you advise counts as a single client.

If you have less than $100 million in AUM, please continue, otherwise, you simply look to the federal exemptions (private fund adviser exemption, venture capital fund adviser exemption, foreign private fund adviser exemption).

The states basically fall into one of three categories:

• No Exemptions. If you are an investment adviser, you must register as such, including obtaining all applicable licenses;
• ERA-type exemption. While you are “exempt,” you still must file truncated Form ADV with the State (the filings are done through FINRA); and
• Exempt. As long as you qualify for the exemption, the exemption is self-executing, which means you don’t need permission and you don’t need to file.

Please see information on the various states below. If you find anything that is no longer accurate, please comment below or reach out to me at michael@blackhill.co.

I can't guarantee any of these are accurate, and its possible in our research we have missed rules, regulations, orders or other legal precedent (such as no-action letters). The following is intended as a guide only and you should not rely on anything below without consulting with an attorney.

State Exemptions

Alabama

Investment Advisers in Alabama are required to register with the state by filing Form ADV with the Financial Industry Regulatory Authority. Alabama does not have an exemption, so an adviser with either a place of business in Alabama or more than 5 clients who are residents of Alabama must file in the state.

See Code of Alabama 1975, § 8-6-3 and Justia link

Last update: Dec 22, 2022

Alaska

Alaska does not have an exemption for private fund advisers. Alaska does exempt (A) federally covered advisers, (B) institutional investors, (C) preexisting clients (whose primary residence is not in Alaska) of an adviser registered in another state; and (D) others as exempt by regulation or order.

Alaska Statuts Sec. 45.56.340

Last update: Dec 22, 2022

Arizona

Selected provisions from the statute (emphasis added)

1. An investment adviser is not required to be licensed or make a notice filing under this chapter if that investment adviser is a private fund adviser that satisfies each of the following conditions:

(a) The private fund adviser or any of its advisory affiliates are not subject to an event that would disqualify an issuer under SEC rule 262 of regulation A (17 Code of Federal Regulations section 230.262).

(b) The private fund adviser to a qualifying private fund that is not a venture capital company files with the commission each report and each report amendment that the investment adviser is required to file with the SEC pursuant to SEC rule 204-4 (17 Code of Federal Regulations section 275.204-4). The private fund adviser shall electronically file the reports with the commission through the IARD. A report is deemed filed when the report and the fee required by subdivision (c) of this paragraph are accepted by the IARD on this state's behalf.

(c) The private fund adviser to a qualifying private fund that is not a venture capital company has paid a fee of $125 to the commission for each calendar year in which it relies on the exemption provided by this subsection.

2. Except as provided in subsection H of this section, advises at least one retail buyer fund and that complies with paragraph 1 of this subsection and all of the following requirements with respect to each retail buyer fund advised by the private fund adviser:

(a) The private fund adviser only advises those retail buyer funds whose outstanding securities, other than short-term paper, are beneficially owned entirely by either:

(i) Any person that, at the time that the securities are sold, the private fund adviser reasonably believes to be an accredited investor as defined in SEC rule 501(a) of regulation D (17 Code of Federal Regulations section 230.501(a)) or that is a manager, director, officer or employee of the private fund adviser.

(ii) Any person that obtains the security through a transfer not involving a sale of that security.

(b) At or before the time of purchase of any security of a retail buyer fund, the private fund adviser discloses in writing to the purchaser of the security both of the following:

(i) All services, if any, to be provided by the investment adviser to a purchaser of securities of the retail buyer fund and to the retail buyer fund itself.

(ii) All duties, if any, that the investment adviser owes to a purchaser of securities of the retail buyer fund and to the retail buyer fund itself.

(c) The private fund adviser obtains on an annual basis audited financial statements of each retail buyer fund that is advised by the private fund adviser and delivers a copy of the audited financial statements to each purchaser of securities of the retail buyer fund. This subdivision does not apply to a limited retail buyer fund with respect to any annual period for which each owner of outstanding securities of the limited retail buyer fund has waived the application of this subdivision after the beginning of the annual period to which the waiver applies.

44-3152

Last update: Dec 22, 2022

Arkansas

By Rule, Arkansas exempts certain private fund adviser and venture capital fund advisers. General rules:

(A) neither the private fund adviser nor any of its advisory affiliates are subject to an event that would disqualify an issuer under Rule 506(d)(1) of SEC Regulation D, 17 C.F.R. § 230.506(d)(1);

(B) the private fund adviser files with the state each report and amendment thereto that an exempt reporting adviser is required to file with the Securities and Exchange Commission pursuant to SEC Rule 204-4, 17 C.F.R. § 275.204-4. These filings are to be made electronically through the Investment Adviser Registration Depository (IARD); and

(C) the private fund adviser pays the fees specified in Section 23-42- 304(a)(6) of the Act.

Additionally:

(A) advisers of 3(c)(1) funds that are not venture capital funds must (i) only be owned by "qualified clients" as defined in Rule 205-3 of the Investment Advisers Act of 1940 and (ii) obtain on an annual basis audited financial statements for each 3(c)(1) fund that is not a venture capital fund and deliver such financial statements to each beneficial owner of the fund.

(B) at the time of purchase, the private fund adviser must disclose: (i) all services, if any, to be provided to individual beneficial owners; (ii) all duties, if any, the investment adviser owes to beneficial owners, and (iii) any other material information affecting the rights or responsibilities of the beneficial owners

Rule 302.02(h) See Page 38.

Last update: Dec 22, 2022

California

Private fund advisers in California are exempt if the following conditions are met:

1. Neither the fund nor its affiliates are subject to disqualification.

2. The adviser files truncated Form ADV through FINRA with the Securities Regulation Division.

3. If the adviser provides advice to one or more "retail buyer funds": (a) the interests in such fund must be owned by "accredited investors" or must have obtained the interest via a transfer other than a sale; (b) at or before sale of the interests in the fund, the adviser must disclose in plain english (in a PPM or otherwise) all material facts regarding (i) all services, if any, to be provided to the beneficial owner and to the fund, and (ii) all duties, if any, the adviser owes a beneficial owner and the fund; (c) on an annual basis, the adviser must cause the fund to obtain and distribute copies of audited financial statements, which must be audited by an independent CPA registered and subject to examination by the PCAOB, to the beneficial owners within 120 days after fiscal year end (or 180 days if the fund is a fund of funds); (d) the adviser may not enter into any agreement where it is entitled to receive a share of the capital gains or the capital appreciation on any funds except those received from "qualified clients" as defined in Rule 205-3(d) under the Investment advisers Act of 1940.

"Retail buyer fund" means a 3(c)(1) or 3(c)(5) exempt fund that is not a venture capital company.

"Venture capital company" means any of these:

• An entity where on at least one occasion during the annual period commencing with its inception, and on at least one occasion during each annual period thereafter, at least 50% of its assets, valued at cost, are venture capital investments or derivative investments.
  • "Venture capital investment" means an acquisition in an operating company and the fund, the adviser (or an affiliate) has management rights.
  • "Management rights" means a contractual right or through ownership of securities to substantially participate in, influence the conduct of or provide significant guidance concerning the management, operations or business objectives of the company.
  • "Derivative investment" means the acquisition by a venture capital company in the ordinary course of business of securities in exchange for existing investments either upon exercise or conversion of the securities or in connection with a public offering, merger or reorganization.
  • "Operating Company" means an entity primarily engaged in the production or sale of a product or service other than the management of investment of capital, but does not include sole proprietorships.
• An entity that is a "venture capital fund" as defined in Rule 203(l)-1 under the Investment Advisers Act of 1940.
• An entity that is a "venture capital operating company" as defined in rule 2510.3-101(d) under ERISA.

California Code Regs. Title 10, Chapter 3 § 260.204.9

Last update: Dec 23, 2022

Colorado

Colorado follows the NASAA model rule:

Exemption for private fund advisers. An adviser is exemption according to the following:

• Neither the private fund adviser nor any of its advisory affiliates are subject to an event that would disqualify an issuer under Rule 506(d)(1) of SEC Regulation D, 17 C.F.R. § 230.506(d)(1).
• The private fund adviser files truncated Form ADV (Exempt Reporting Adviser filing); and
• The private fund adviser pays state fees.
• If the adviser advises 3(c)(1) funds that are not venture capital funds:
  • The adviser can only admit "qualified clients" as investors in the fund.
  • The adviser must disclose to each beneficial owner at the time of investment:
    • all services, if any, to be provided to individual beneficial owners;
    • all duties, if any, the investment adviser owes to the beneficial owners; and
    • any other material information affecting the rights or responsibilities of the beneficial owners.
  • The adviser must cause each such fund to obtain and deliver to the beneficial owners of such fund annual audited financial statements of the fund.

3 CCR 704-1 § 51-4.11(IA) - See Page 69

Current Version of the Regulations can be found here.

Last update: Dec 23, 2022

Connecticut

Any adviser that meets the federal definition of a venture capital fund adviser is exempt under CT law if the adviser files truncated Form ADV.

District of Columbia

The District of Columbia exempts venture capital fund advisers if they file truncated Form ADV. Otherwise, there is no exemption for private fund advisers.

Delaware

Delaware exempts investment advisers who provides advice solely to one or more qualifying private funds, other than a private fund that qualifies for the exclusion from the definition of “investment company” provided in section 3(c)(1) of the Investment Company Act of 1940, 15 U.S.C. §80a-3(c)(1). The adviser cannot be subject to disqualification and the adviser must file truncated Form ADV.

Florida

Florida exempts from the definition of investment adviser any adviser who (1) doesn’t hold itself out as an investment adviser; and (2) has, in the past 12 months, fewer than 16 clients in the state of Florida. States can increase the “De Minimis Exemption,” but they cannot make the requirement more restrictive. Here, FL is more lenient than most states.

Georgia

Georgia exempts from the definition of investment adviser an adviser who, during the preceding 12 months, has had fewer than 6 clients in the state.

Hawaii

Hawaii does not have a private fund or venture capital fund exemption. Advisers that (1) are not federally covered, (2) have a place of business in Hawaii, or (3) have more than 5 clients in the state must register as an investment adviser in the state.

Idaho

Idaho does not have an exemption for private fund or venture capital fund advisers. Advisers that are not federally covered must file as investment advisers with the state.

Illinois

Illinois exempts from registration investment advisers who, during the preceding 12 months, have had five or fewer clients in the state. There is no specific exemption for private fund advisers or venture capital fund advisers. Typically, each fund is a client, not each investor, so many private fund advisers would qualify for the exemption in the state.

Indiana

Indiana’s Securities Commissioner will not institute enforcement action against a person for failing to register as an investment adviser if the person:maintains a place of business in Indiana; has had 5 or fewer clients in the preceding 12 months; does not hold itself out to the public as an investment adviser; and advises only private funds and is not subject to disqualification.If the private funds are not venture capital funds, the adviser must make additional disclosures to the investors and obtain audited financial statements for each 3(c)(1) fund, which must be provided to the investors annually.

Iowa

Iowa has a private fund exemption and a venture capital fund exemption. Each must file truncated Form ADV. Advisers of non-venture capital 3(c)(1) funds must only advise funds whose owners are “qualified clients,” must make additional disclosures to the investors, and must obtain annual audited financial statements for the funds.

Kansas

Kansas exempts investments advisers that:maintains its principal place of business in Kansas; provides investment advise to fewer than 15 clients; does not hold itself out as an investment adviser; and does not advise any registered investment company. Advisers must file truncated form ADV.

Kentucky

Kentucky does not have an exemption for private fund advisers or venture capital fund advisers. Advisers with a place of business in or that have more than 5 clients in Kentucky must register as an investment adviser if the adviser is not registered with the SEC.

Louisiana

Louisiana exempts an adviser who, during any twelve month period, has had fewer than 15 clients in the state and does not hold itself out to the public as an investment adviser.

Maine

Maine exempts from registration venture capital fund advisers and private fund adviser if the adviser has a place of business in the state and the adviser does not hold itself out to the public as an investment adviser. Advisers that adviser 3(c)(1) funds that are not venture capital funds must provide additional disclosure to the investors and obtain annual audited financial statements. These exempt advisers must file truncated Form ADV.

Maryland

Maryland exempts advisers if they are not disqualified and solely adviser private funds. If the private fund is a 3(c)(1) fund and not a venture capital fund, the adviser must make additional disclosures to the investors and provide audited financial statements. Exempt advisers must file truncated Form ADV.

Massachusetts

Massachusetts exempts private fund advisers and venture capital fund advisers. Advisers must file truncated Form ADV. Advisers of 3(c)(1) funds that are not venture capital funds must provide additional disclosure and audited annual financial statements to all investors.

Michigan

Michigan will have a private fund adviser exemption effective in January 2020.

Minnesota

Minnesota exempts private fund advisers that are not subject to disqualification. The adviser must file truncated Form ADV. Advisers that advise 3(c)(1) funds that are not venture capital funds have additional disclosure and audit requirements.

Mississippi

Mississippi does not have a private fund adviser exemption or a venture capital fund exemption. This means that an adviser with either a place of business in the state or more than 5 clients must register as an investment adviser.

Missouri

Missouri exempts investment advisers that advise private funds. Private fund advisers are exempt in Missouri if they are not subject to disqualification. The adviser must file truncated Form ADV. If the private fund adviser advises any 3(c)(1) funds that are not venture capital funds, the adviser must reasonably believe that all the beneficial owners are either (1) an “accredited investor” or (2) is a qualified client. Missouri, however, excludes an person from the definition of an “accredited investor” if the person would only be accredited based on his or her income (or joint income with a spouse).

Montana

Montana does not have an exemption for private fund advisers or venture capital fund advisers. This means that advisers that either (1) have a place of business in the state or (2) have more than 5 clients who are residents of the state must register in the state of Montana.

Nebraska

Nebraska exempts from registration private fund advisers that are not subject to disqualification and that file truncated Form ADV. Advisers to 3(c)(1) funds that are not venture capital funds have additional disclosure requirements and must obtain annual audited financial statements for each 3(c)(1) fund that is not a venture capital fund.

Nevada

Nevada exempts advisers if their only Nevada clients are “accredited investors” as defined in Rule 501, so most private fund and venture capital fund advisers are exempt from registration in Nevada.

New Hampshire

New Hampshire exempts any investment advisers who solely advises “venture capital funds.” The adviser must file truncated Form ADV.

New Jersey

New Jersey exempts advisers that have no more than 5 New Jersey clients, regardless of whether the adviser has a place of business in the state or not. Typically, each fund is a client, so advisers with 5 or fewer funds as clients will not be required to register.

New Mexico

New Mexico, by order, exempts advisers that are not disqualified by the SEC and that solely advise private funds. If the adviser advises 3(c)(1) funds that are not venture capital funds, the adviser must comply with additional disclosure requirements and the fund must obtain annual audited financial statements. Exempt advisers must file truncated Form ADV.

New York

New York exempts advisers that have sold, during the previous 12 months, advisory services to fewer than 6 persons residing in the state. Fund advisers with 5 or fewer funds as clients (that were signed within the preceding 12 months) are exempt from registration. No truncated form ADV is required.

In other words, advisers with less than $25 M in assets under management must register if they have more than five clients in the state. Advisers with more than $25 million and less than $100 M may need to register as a state registered investment adviser if it has more than 5 clients even if it meets the private fund adviser exemption or the venture capital fund adviser exemption at the federal level.

Updated February 14, 2023

North Carolina

North Carolina exempts investment advisers from the registration requirement if, during the preceding 12 months, the adviser has had fewer than 15 clients and the adviser does not hold itself out to the public as an investment adviser.

North Dakota

North Dakota does not exempt private fund or venture capital fund advisers. Advisers with either a place of business in North Dakota or more than five clients in the state must register as an investment adviser in the state.

Ohio

Ohio exempts advisers who, during the preceding 12 months: has had fewer than 15 clients; does not hold itself out to the public as an investment adviser; and only has “accredited investors” as clients, as defined in Rule 501 of Regulation D.

Oklahoma

Oklahoma exempts from the registration requirement advisers that solely advise private funds. This will include venture capital funds. Advisers of 3(c)(1) funds that are not venture capital funds have no additional requirements. Private fund advisers in Oklahoma must file truncated Form ADV and they cannot be disqualified.

Oregon

Oregon exempts advisers who conduct no public advertising or general solicitation in the state and who’s only clients are “accredited investors.”

Pennsylvania

Pennsylvania exempts from registration advisers that have a place of business in the state that have 5 or fewer total clients, either within or without the state.

Rhode Island

Rhode Island exempts from registration advisers that solely adviser private funds. Advisers that advise 3(c)(1) funds that are not venture capital funds have additional disclosure requirements to the investors and must provide investors of those funds annual audited financial statements.

South Carolina

South Carolina does not exempt private fund advisers. Private fund and venture capital fund adviser must register with and comply with the laws of South Carolina unless the adviser is federally covered.

South Dakota

South Dakota exempts from registration advisers that solely adviser private funds or venture capital funds as defined federally under Sections 203(l) or 203(m).

Tennessee

Tennessee exempts advisers who, during the preceding 12 months, has had fewer than 15 clients and who doesn’t hold itself out to the public as an investment adviser.

Texas

Texas exempts private fund advisers subject to the following: (i) The private fund adviser files truncated Form ADV; (ii) The adviser is not subject to disqualification; (iii) Advisers to 3(c)(1) funds that are not “private equity funds,” “real estate funds,” or “venture capital funds” must comply with additional disclosure and audit requirements.

Utah

Utah exempts advisers that advise solely the following:

• Certain “Institutional Investors:”
  • Non-individual “accredited investors” as defined in Rule 501(a)(1)-(3) and (7) of Regulation D (or an entity whose equity owners consist solely of those persons). Important: This definition only includes banks, broker dealers, investment advisers, certain employee benefit plans, business development companies, certain entities (and trusts) with assets over $5 million that were not formed for the purpose of acquiring securities being sold to it. Many funds will not qualify for this because the definition does not include all "accredited investors."
  • qualified institutional buyers; or
  • corporations, partnerships, trusts, estates, or other entities (excluding individuals) that have a net worth of not less than $10 million.
  • Note 1: The above is not available if:
    • the investor is acting as an agent for an investor that does not qualify for any of the above; or
    • the investor is not acting for its own account (or bona fide trustee of a trust.
• Certain Private Funds. Advisers and adviser representatives are exempt if they only provide advisory services to a private fund that regularly makes equity investments in companies if each of the following apply:
  • The private fund does not grant investors the right or power to redeem their interests in the fund within two years of purchase;
  • At the time of investment, at least 80% of the fair market value of the investments made by the fund must possess all of the following characteristics:
    • the private fund (alone or with other similarly situated private funds) must have control of the target company;
    • the private fund has access to material business, financial, and other corporate records of the target company;
    • the private fund must have the right to elect one or more directors to the target company’s board of directors (or equivalent); and
    • at the time of investment, the private fund’s securities must not have been listed on an exchange and must be highly illiquid so that no secondary market exists for the securities;
  • At the time of investment, at least 80% of the fair market value of the investments made by the private fund must possess at least two of the following characteristics:
    • the private fund’s interest must include common, preferred, convertible, or other direct or indirect equity stake;
    • the private fund has the right, at the company’s expense, to have its equity interest registered for sale in a future public offering or otherwise redeemed upon the occurrence of given events or contingencies, or to otherwise obtain liquidity for the fund’s investment;
    • the private fund has:
      • co-sale rights that allow the fund to sell its interests on the same terms as holders of a majority of the equity interests of the target;
      • liquidation preferences with priority to holders of common equity; or
      • redemption rights to require the target company to repurchase or redeem the private fund’s equity at a price constituting a preference to that of the common equity holders;
    • the private fund has:
      • anti-dilution rights, materially limiting the power of the target company to issue new equity securities on terms that dilute the equity interest of the private fund without adjusting the investment rights of the fund;
      • rights of first offer enabling the fund to acquire its pro rata share of newly issued securities;
      • rights to materially preclude the company from issuing equity without first obtaining consent of the fund; or
      • other rights superior to the rights of holders of common equity relating to cause or block an event or transaction that would provide full or partial liquidity to the fund The exemption in Utah is targeted at venture capital fund advisers, and advisers relying on the exemption must ensure they meet the requirements of the state.

Utah also has an outdated prohibition on general solicitation, so the exemptions under Utah law may not be available for a private fund that relies on Rule 506(c) or other exemption that allows for general solicitation.

Certain parties have been successful in obtaining no action letters from the Division of Securities for compliance with the NASAA model rule:

• Powell Anderson Capital Partners No Action Letter
• OLO Capital Investment Manager No Action Letter

Each of these letters states that they are limited to the facts provided therein and carry no precedential effect for any other party.

Last Updated: January 4, 2023

Vermont

Vermont exempts private fund and venture capital fund advisers. Advisers that advise 3(c)(1) funds that are not venture capital funds must comply with additional disclosure requirements and the fund must provide audited financial statements to investors.

Virginia

Virginia exempts private fund and venture capital fund advisers. Advisers that advise 3(c)(1) funds that are not venture capital funds must comply with additional disclosure requirements and the fund must provide audited financial statements to investors.

Washington

Venture Capital Advisers. Investment advisers are exempt under WAC 460-24A-072 if the adviser would be exempt under Section 203(l) of the Investment Advisers Act of 1940 (the venture capital fund adviser exemption).

Private Fund Advisers. Advisers are also exempt if they are "private fund advisers" under WAC 460-24A-071. Private fund advisers are those who provide "advise solely to one or more qualifying private funds." A qualifying private fund means a private fund that qualifies for the exclusion under Section 3(c)(7) of the Investment Company Act (Qualified Purchasers only).

Summing up: VC Fund advisers (including to 3(c)(1) funds) are exempt and any adviser to 3(c)(7) funds are exempt. In either case, you must not be subject to disqualification and you must file Form ADV.

Private Fund Exemption: WAC 460-24A-071

VC Fund Exemption: WAC 460-24A-072

Certain Definitions: WAC 460-24A-005

Updated February 14, 2023

West Virginia

West Virginia does not have a private fund or venture capital fund adviser registration, which means any adviser that either has a place of business or more than 5 clients in West Virginia must register as an investment adviser unless the adviser is a federally covered adviser.

Wisconsin

Wisconsin exempts advisers that solely adviser private funds or venture capital funds. Advisers to 3(c)(1) funds that are not venture capital funds must provide additional disclosure to the investors in the funds and the funds must provide annual audited financial statements to the investors. Advisers must file truncated Form ADV.

Wyoming

Wyoming incorporates, by reference, NASAA’s registration exemption for Investment Advisers to Private Funds Model Rule, adopted December 16, 2011. This means that private fund and venture capital advisers are exempt from registration. Advisers to 3(c)(1) funds that are not venture capital funds must comply with additional disclosure requirements and the funds must provide annual audited financial statements to the investors. Private fund and venture capital fund advisers must file truncated Form ADV.