--- title: California Department of Corporations Announces Additional Changes to Proposed Private Fund Adviser Exemption description: California Department of Corporations Announces Additional Changes to Proposed Private Fund Adviser Exemption --- [![Jacko Law Group, PC - Securities Law](https://resources.jackolg.com/hubfs/Jackolawgroup%20February2018/image/brand.png)](http://www.jackolg.com/) Call Today for a Consultation San Diego 619-298-2880 San Francisco 415-766-3599 Los Angeles 213-631-2549 Menu [Contact](http://www.jackolg.com/Contact.shtml) - [Home](http://www.jackolg.com/) - [Firm Overview](http://www.jackolg.com/Firm-Overview/) - [Professionals](http://www.jackolg.com/Professionals/) - [Events](http://www.jackolg.com/Events.shtml) - [News](http://www.jackolg.com/News-Room/) - [Blog](http://www.jackolg.com/blog/) - [Videos](http://www.jackolg.com/Videos.shtml) - [Contact](http://www.jackolg.com/Contact.shtml) # Understand. Define. Achieve. 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View Our Practice Areas - [SEC/FINRA Regulatory Counsel](http://www.jackolg.com/Regulatory-Examinations-and-Inquiries-SEC-and-FINRA/) - [Private Equity & Hedge Fund Counsel](http://www.jackolg.com/Private-Equity-Counsel/) - [Investment Adviser Services](http://www.jackolg.com/Legal-Considerations-for-Breaking-Away/Investment-Adviser-Counsel.shtml) - [Breakaways And Transitions](http://www.jackolg.com/Legal-Considerations-for-Breaking-Away/) - [General Corporate Counsel](http://www.jackolg.com/Corporate-Counsel/) - [Broker- Dealer Counsel](http://www.jackolg.com/Broker-Dealer-Counsel/) #### News - [Legal Tips](http://www.jackolg.com/News-Room/) - [Publications](http://www.jackolg.com/News-Room/Publications.shtml) - [Blog](http://www.jackolg.com/blog/) # Jacko Law Group Blog # California Department of Corporations Announces Additional Changes to Proposed Private Fund Adviser Exemption On June 18, 2012 the California Department of Corporations (DOC) published [notice](http://www.corp.ca.gov/Laws/CSL/pdf/0211_Notice15Day.pdf) of additional changes to its proposed private fund adviser exemption regulation (10 CCR §260.204.9) and a new 15-day public comment period. As reported [earlier](http://jackolg.wordpress.com/2012/02/16/update-on-private-fund-advisers-registration/http:/jackolg.wordpress.com/2012/02/16/update-on-private-fund-advisers-registration/), the DOC’s proposed rule provides a California corollary to the new federal regulatory exemption for private fund advisers with assets under management of less than $150 million. Under the proposed rulemaking, certain California private fund advisers will be exempt from the DOC’s investment adviser registration requirement if the adviser: (1) is not subject to statutory disqualification under SEC Rule 262 of Regulation A; (2) files periodic reports on Form ADV containing the information required by federally exempt private fund advisers; and (3) pays an annual fee of $125. Under the DOC’s proposed rule, a private fund adviser is defined as an “investment adviser who provides advice solely to one or more qualifying private fund(s)” and a qualifying private funds is an issuer “that qualifies for the exclusion from the definition of an investment company under section 3(c)(1), 3(c)(5), or 3(c)(7) … of the Investment Company Act of 1940…” The revised exemption was initially proposed on January 6, 2012. Comments received on that initial proposal resulted in a number of changes to the rule, necessitating the new public comment period. The [changes](http://www.corp.ca.gov/Laws/CSL/pdf/0211_Text15Day.pdf) to the proposed rule are fairly non-controversial. They include: -Expansion of the definition of “qualifying private fund” to include issuers that qualify for an exclusion from registration as an investment company under Section 3(c)(5)of the [Investment Company Act of 1940](http://www.sec.gov/about/laws/ica40.pdf); -For advisers who qualify for the exemption because their funds are excluded from registration as an investment company under Section 3(c)(1) or 3(c)(5) of the Investment Company Act of 1940: - A requirement that audited financials to be prepared by a CPA that is registered with the PCAOB and be delivered to the fund’s investors within 120 days of the end of the fund’s fiscal year (or 180 days for a fund of funds), and - Prohibition of charging performance fees to any investor that is not a “qualified client” as defined by SEC Rule 205-3(d) (17 CFR § 275.205-3(d)); and - Expansion of the definition of “venture capital company” to include corresponding federal definitions. The existing California private fund exemption was extended to July 16, 2012, but cannot be extended again. The new rule, therefore, should be finally adopted by the Department no later than that date. 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