Hedge funds are normally organized as limited partnerships that are limited to 100 total investors or limited partners. Most hedge funds only accept accredited investors; although up to 35 non-accredited investors can be accepted. As private offerings, hedge funds are not permitted to advertise or generally solicit new investors. The regulatory framework that generally governs hedge funds normally falls into one of the following:

Securities Act of 1933: Interests in hedge funds are not registered under the Securities Act of 1933, as amended, or any other securities laws, including state securities or blue sky laws – assuming the fund is structured properly to take advantage of applicable securities acts exemptions. Instead, hedge fund interests are offered in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder. Prospective purchasers are required to represent that they are an accredited investor (up to 35 can be non-accredited investors) as defined in Regulation D and that they are acquiring the interest for investment purposes only and not for resale or distribution.

Investment Company Act of 1940: Hedge funds are subject to the Investment Company Act of 1940. The number of beneficial owners of interest, for purposes of the Investment Company Act of 1940, as amended, is limited to 100 or less so as to qualify for the exemption from the provisions of the Investment Company Act. With respect to the determination of the number of such beneficial owners, hedge funds must obtain and rely on appropriate representations and undertakings from each limited partner in order to assure that the fund meets the conditions of the exemption on an ongoing basis.

Investment Advisers Act of 1940: Some general partners of hedge funds choose to register as investment advisers (or are already investment advisers) under the Investment Advisers Act of 1940. Others do not in reliance upon the exemption from the registration requirements of the Advisers Act contained in Section 203(b)(3), which exempts from registration any investment adviser who during the course of the preceding 12 months had fewer than 15 clients and who meets certain other requirements. General partners who register may be subject to both various fee restrictions contained in the Investment Advisers Act and more stringent accredited investor requirements.