# ASC 946-10-55: Financial Services—Investment Companies — Overall — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/946/10/#55-implementation-guidance-and-illustrations) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:66abcf25121d76a05d62abb97a077d3f5d5c7eb3ae12d441baf5ccd61bf08a70 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 946-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/946/10/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [946-10-55-1](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:5dc5d6de50321872648e35078506b7a0f613023836021d54eb9f3896aaf13905 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section provides additional guidance for the assessment in paragraphs [946-10-15-5 through 15-9](https://asc.understandingaccounting.org/asc/946/10/#946-10-15-5) to determine whether an entity that is not regulated under the Investment Company Act of 1940 is an investment company under this Topic. ##### [946-10-55-2](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:caa47a16ab8a143c46958276f7b27904cab2dd0a5d118a5474ea536f832261c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section is organized as follows: 1. a Fundamental characteristics of an investment company 2. b Typical characteristics of an investment company 3. c Illustrative examples. ##### [946-10-55-3](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:86673b8b9a035002987376d93c00075e60da9b6e9dd3d15c3e7da7b39c1950fa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To be an investment company, an entity shall possess the fundamental characteristics in paragraph [946-10-15-6](https://asc.understandingaccounting.org/asc/946/10/#946-10-15-6). Paragraphs [946-10-55-4 through 55-10](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-4) provide additional guidance for determining whether an entity has the fundamental characteristics of an investment company. ##### [946-10-55-4](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:498ef0e73deea7fa76e08f29b3e087f24ffc96e9a7397c2a5297ecfcb4556c9e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company should have no substantive activities other than its investing activities and should not have significant assets or liabilities other than those relating to its investing activities, subject to the exception in the following paragraph. ##### [946-10-55-5](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:80003838ce75ff68ce3e85b3c14ef4480c3d3cefc79e38ad986db51796e4ea12 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company may provide investing-related services (for example, investment advisory or transfer agent services) to other entities, directly or indirectly through an investment in an entity that provides those services, as long as those services are not substantive. However, an investment company may provide substantive investing-related services, directly or indirectly through an investment in an entity that provides those services, if the substantive services are provided to the investment company only. ##### [946-10-55-6](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:e1d76690d72a6d14248f234609837acd760bfca9a080d208280b8370331e7fc8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Evidence of the entity's business purpose and substantive activities may be included in the entity's offering memorandum, publications distributed by the entity, and other corporate or partnership documents that indicate the investment objectives of the entity. Evidence of the entity's business purpose and substantive activities also may include the manner in which the entity presents itself to other parties (such as potential investors or potential investees). For example, an entity that presents its business to its investors as having the objective of investing for capital appreciation has characteristics that are consistent with the business purpose and substantive activities of an investment company. Alternatively, an entity that presents itself as an investor whose objective is jointly developing, producing, or marketing products with its investees has characteristics that are inconsistent with the business purpose and substantive activities of an investment company. ##### [946-10-55-7](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:b3db9183a5af2d4a8b8e22f9ae63641d470a4351e85d1fd73b1704b74e1b385d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity's investment plans also provide evidence of its business purpose and substantive activities. Accordingly, an investment company whose business purpose and substantive activities include realizing capital appreciation should have an exit strategy for how it plans to realize the capital appreciation of its investments. Although the entity may not yet have determined the specific method or timing of disposing of an investment, the fact that it has identified potential exit strategies through which it can realize capital appreciation provides evidence that its business purpose and substantive activities are consistent with those of an investment company. The entity need not document specific exit strategies for each individual investment held for the purpose of realizing capital appreciation but should identify potential exit strategies for different types or portfolios of investments held with the purpose of realizing capital appreciation. Disposal of investments only during liquidation or to satisfy investor redemptions are not exit strategies. Therefore, an entity should have a plan to dispose of its investments before liquidation when its business purpose and substantive activities include realizing capital appreciation. An investment company whose business purpose and substantive activities are to invest for returns only from investment income does not require an exit strategy for its investments. ##### [946-10-55-8](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:7a62db6b50b9682b58d9c852423f3dbe0d9dac8f27c39a84fb26d4c195906006 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity would not be an investment company if the entity or its [affiliates](https://asc.understandingaccounting.org/glossary/a/#affiliate "A party that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with an entity. See Control.") obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income. Examples of relationships and activities that would be inconsistent with the characteristics of an investment company include any of the following: 1. a The entity or its affiliates acquire, use, exchange, or exploit the processes, assets, or technology of an investee or its affiliates. This includes the entity or its affiliates having disproportionate or exclusive rights to acquire assets, technology, products, or services of an investee or its affiliates (for example, by holding an option to purchase an asset from an investee if the asset's development is deemed successful). 2. b There are other arrangements between the entity or its affiliates and an investee or its affiliates to jointly develop, produce, market, or provide products or services. 3. c An investee or its affiliates provide financing guarantees or assets to serve as collateral for borrowing arrangements of the entity or its affiliates to provide returns or with the objective of providing returns other than capital appreciation or investment income. The guidance in this paragraph does not prohibit an investment company from using its investments in its investees as collateral for any of its borrowings. 4. d An affiliate of the entity holds an option to purchase from the entity ownership interests in an investee at an amount other than [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date."). 5. e There are transactions between the entity or its affiliates and an investee or its affiliates that meet any of the following: 1. 1 They are on terms that are unavailable to entities that are not affiliates of the investee. 2. 2 They are not at fair value or are not conducted at arm's length. 3. 3 They represent a substantive portion of the investee's or the entity's business activities, including business activities of affiliates of the entity or affiliates of the investee. ##### [946-10-55-9](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:ee958b5c1f9a0cf31b2e17dc6071888472587c2ee942a7e4ee1dd1cda8662ac6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company may have a strategy to invest in more than one investee in the same industry, market, or geographical area to benefit from synergies that increase the returns from capital appreciation and investment income from those investments. Transactions between an entity's investees should not affect the entity's assessment of whether it is an investment company unless those transactions result in the entity obtaining returns or benefits other than capital appreciation or investment income. ##### [946-10-55-10](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:36c1bbc3607edc134f139b33a55ba2f2620df6c066f127a93456e55b058959c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company may provide both of the following services to an investee, either directly or through an investment in an entity that provides those services, only if those services are provided for the purpose of maximizing returns from capital appreciation, investment income, or both (rather than other benefits) and do not represent a separate substantial business activity or separate substantial source of income for the investment company: 1. a Assistance with day-to-day management of the operations of an investee 2. b Financial support, such as a loan, capital commitment, or guarantee. ##### [946-10-55-11](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:b60d72f8c7bbf298144f00a8db17e6a34aa1559b590ae231563dfeedcf0bc8b8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As required by paragraph [946-10-15-5](https://asc.understandingaccounting.org/asc/946/10/#946-10-15-5), an entity shall assess all the typical characteristics in paragraph [946-10-15-7](https://asc.understandingaccounting.org/asc/946/10/#946-10-15-7) to determine whether it is an investment company. If an entity does not possess one or more of the typical characteristics, it should apply judgment and determine, considering all facts and circumstances, how its activities continue to be consistent (or are not consistent) with those of an investment company. Paragraphs [946-10-55-12 through 55-29](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-12) provide additional guidance for determining whether an entity has a certain typical characteristic of an investment company. ##### [946-10-55-12](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:af0db23987a4f198a87ae08691bf3452dd23fb1c1be30e29c03c96ed62fac5b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company typically holds multiple investments at the same time to diversify its risk and maximize its returns from capital appreciation, investment income, or both. Investments typically consist of securities of other entities, but also may include commodities, securities based on indexes, securities sold short, derivative instruments, real estate properties, and other forms of investments. ##### [946-10-55-13](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:3959c600e5c8f3339abd58a8fc09912b6a9f890f3d46f61b1b39432c087789e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company may hold investments directly or indirectly through another investment company. For example, in a master-feeder structure, a feeder fund holds multiple investments indirectly through its investment in a master fund that holds multiple investments or, in a fund-of-funds structure, an investment company holds multiple investments indirectly through its investment in an underlying fund that holds multiple investments. ##### [946-10-55-14](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:6b53e350589e4b1aa3f1f640778538a84fa60073f6f14c061cc79eba08f6a48d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Holding a single investment does not necessarily preclude an entity from being an investment company. There may be times when an investment company holds a single investment, such as in any of the following examples: 1. a It is in its start-up period and has not yet identified suitable investments and, therefore, has not yet executed its investment plan to acquire multiple investments. 2. b It has not yet made other investments to replace those it has disposed of. 3. c It is in the process of liquidation. 4. d It is established to pool investors' funds to invest in a single investment when that investment is unobtainable by individual investors (for example, when the required minimum investment is too high for an individual investor). ##### [946-10-55-15](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:076468819430d5b1c408eb498dfea12698bf1a755ce085fb3ab2a11679951b8c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company with a single investment also may be formed (for legal, regulatory, tax, or other business reasons) in conjunction with another investment company that holds multiple investments (for example, a master-feeder structure or blocker fund). Investment companies formed in conjunction with each other are not required to be formed at the same time. Holding a single investment for that reason does not necessarily preclude an entity from being an investment company. ##### [946-10-55-16](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:05f4aafa3eb60696b3defa95e8253743b479fdabe897524b2e7d5a45b2e6c184 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company typically pools funds from multiple investors and provides them with investment management services, including access to investment opportunities unobtainable by individual investors. Having multiple investors makes it less likely that the entity or its affiliates obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income. ##### [946-10-55-17](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:96ca1caba1fae63eca1cb07ece5bcaf3a1104cb7b9539b76e8b50f4fc99c70f5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Having a single investor does not necessarily preclude an entity from being an investment company. There may be times when an investment company has a single investor, such as in any of the following examples: 1. a It is in its initial offering period, which has not expired, and it is actively identifying suitable investors. 2. b It is actively identifying investors but has not yet identified suitable investors to replace those that have redeemed their ownership interests. 3. c It is in the process of liquidation. ##### [946-10-55-18](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:5bbb961a2cb4cac44883827bf34f2f3c91dbd2c65461aab24bd54517b0f6c37f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company may be formed by, or for, a single investor that represents or supports the interests of a wider group of investors (for example, a pension fund, government investment fund, or endowment fund). An investment company with a single investor also may be formed (for legal, regulatory, tax, or other business reasons) in conjunction with another investment company that has multiple investors (for example, a master-feeder structure or a blocker fund). Investment companies formed in conjunction with each other are not required to be formed at the same time. Having a single investor for those reasons does not necessarily preclude an entity from being an investment company. ##### [946-10-55-19](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:e89c8b7a03586bf54ce168b7c8f337270ee968f9aa91a22f41d9781095e33a95 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company typically has investors that are not [related parties](https://asc.understandingaccounting.org/glossary/r/#related-parties "Related parties include: Affiliates of the entity Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity Trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management Principal owners of the entity and members of their immediate families Management of the entity and members of their immediate families Other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.") of the [parent](https://asc.understandingaccounting.org/glossary/p/#parent "An entity that has a controlling financial interest in one or more subsidiaries. (Also, an entity that is the primary beneficiary of a variable interest entity.)") (if there is a parent) or the investment manager. Those unrelated investors, in aggregate, hold a significant interest in the investment company. Having investors that are not related parties of the parent or the investment manager makes it less likely that the entity or its affiliates obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income. ##### [946-10-55-20](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:a41d2f770b5b4be91359039b8a127258ff3cc51f87b53ab130c1976a85992416 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investors that are related parties of the parent or investment manager should be combined and treated as a single investor, along with the parent or investment manager, for the purposes of evaluating the more-than-one-investor characteristic of an investment company in paragraph [946-10-15-7](https://asc.understandingaccounting.org/asc/946/10/#946-10-15-7). ##### [946-10-55-21](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:f5f7f928577f46648c85ef85b43410a4b40212c66c64cccd24ff487f69bbfb52 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Having investors that are related parties of the parent or the investment manager does not necessarily preclude an entity from being an investment company. For example, an investment manager may form an investment company for its employees in conjunction with another investment company. Although the employees may be related parties of the investment manager, the investment company formed for its employees mirrors the business purpose and activities of the main investment company. ##### [946-10-55-22](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:36111c871f97a25824d0268adf546d0e09d15269f7456fcecf98ce68001556fc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the parent or its related parties have an implicit or explicit arrangement that would require them to acquire another investor's ownership interest in the investment company at an amount other than fair value, those interests should be combined and treated as if they were owned by the parent for the purposes of evaluating the typical characteristics of an investment company. Examples of when interests would be combined and treated as if they were owned by the parent include any of the following: 1. a The parent or its related parties have a written option to acquire another investor's ownership interests in the entity at an amount other than fair value. 2. b The parent finances another investor's ownership interests, and the ownership interests are collateral for the debt. ##### [946-10-55-23](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:f9139eb35b3f55b274ca1d8b294811f49261bc3d9e55dcc427f68c6faf2ae279 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Ownership interests in an investment company are typically in the form of equity or partnership interests. Each ownership interest represents a specifically identifiable portion of the net assets of the investment company. An investor in an investment company contributes funds to acquire ownership interests, and the value of those interests is dependent on the changes in the fair value of the underlying investments of the investment company. ##### [946-10-55-24](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:f9d106f6d60944859f3a49374671663beca85d7bc99aee17b6842c548c77358b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Having multiple classes of equity instruments, such as shares with distinct rights or rights that do not represent a proportionate interest in all of the underlying investments of the investment company, does not preclude an entity from meeting this characteristic of an investment company. ##### [946-10-55-25](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:793bc6db045b84186d9795bf2958648368f8985c6a17f04fe9f5646287b747d5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company can be but is not required to be a separate legal entity. For example, separate accounts of life insurance companies may not be separate legal entities. However, investors in the separate accounts base their investment decisions on the changes in the fair value of the underlying investments held in those separate accounts. ##### [946-10-55-26](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-26) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:fda1aef911c8b9c42de7a221c03df374518111d25fa43c88f450e07b5a54a94f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In addition, having significant ownership interests that are not considered equity interests in accordance with other Topics (for example, ownership interests in the form of debt) does not necessarily preclude an entity from being an investment company provided that the holders are exposed to variable returns from changes in the fair value of the underlying investments of the entity. The economic substance of the entity, rather than its legal form, should be evaluated to determine whether the entity has that characteristic of an investment company. ##### [946-10-55-27](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:279347ec6e98c1ff628a03b16009c8e0198bc6e7a498ec501ddf32bcfe2ab661 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment company typically manages substantially all of its investments on a fair value basis. Determining whether an entity manages its investments on a fair value basis does not depend on the nature of its investments but, rather, includes an evaluation of whether fair value is a key component of any of the following: 1. a How the entity evaluates the performance of its investments 2. b How the entity transacts with its investors 3. c How asset-based fees are calculated. An investment company's activities typically demonstrate that fair value is the primary measurement attribute used to evaluate the financial performance of and to make investment decisions for substantially all of its investments. Also, an investment company typically transacts with investors on the basis of [net asset value per share](https://asc.understandingaccounting.org/glossary/n/#net-asset-value-per-share "Net asset value per share is the amount of net assets attributable to each share of capital stock (other than senior equity securities, that is, preferred stock) outstanding at the close of the period. It excludes the effects of assuming conversion of outstanding convertible securities, whether or not their conversion would have a diluting effect.") and incurs asset-based fees, both of which are based on the fair value of its investments. ##### [946-10-55-28](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:1f32516fc59f0fc6265eb4edb7cd22138bd13b9cf8a87e02c808f37e0e4f31dd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assets held by an investment company that are used to service the investment company's own investments are not required to be managed on a fair value basis (see paragraph [946-10-55-5](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-5)). ##### [946-10-55-29](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:7c93f4907bdc5154e63aed1db9bc0d3c80c86fe0c1c3790cb80e779ab2d7c07c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Managing investments on another basis, such as a yield basis or an income basis, does not necessarily preclude an entity from being an investment company. For example, although a short-term investment fund may evaluate the performance of its investments on a yield (amortized cost) basis, fair value is the primary measurement attribute used to evaluate the financial performance of investments and to make investment decisions because the fund monitors the fair value of its investments to minimize the differences between the carrying value and the fair value. #### Illustrations ##### [946-10-55-30](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-30) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:2844947e60bf0e5523df70378e3b0e270a9af3f7ddbe356c6f3d81b0149d72a8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Examples illustrate the assessment to determine whether an entity that is not regulated under the Investment Company Act of 1940 is an investment company under this Topic: 1. a Example 1: Limited partnership 2. b Example 2: Technology fund 3. c Example 3: Master-feeder structure. ##### [946-10-55-31](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-31) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:ae5f5e037733c6a82792aaa95497ed4f028517294d22a135f6233975323b0911 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A, a limited partnership, is formed in 20X1 with a 10-year life. The offering memorandum provides that Entity A's purpose is to invest in operating entities with rapid growth potential, with the only objective of realizing capital appreciation from investments in those entities over the life of Entity A. One percent of Entity A's capital was contributed by the general partner (the investment manager), who has the responsibility of identifying suitable investments for Entity A. The remaining 99 percent of Entity A's capital was contributed by 75 limited partners, who are not related parties of the general partner. ##### [946-10-55-32](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-32) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:60ca4b39c3d25cf65b8bd0d2d48841823f1475e1ff92166f9bbe5a0ccdc8ff03 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A begins its investment activities in 20X1. However, no suitable investments are identified during that year. In 20X2, Entity A acquires a controlling financial interest in Entity B, a corporation. Entity A is unable to identify suitable investments and complete any other investment purchases until 20X3, at which time it acquires equity interests in five additional operating companies. Other than acquiring those equity interests, Entity A conducts no other activities. Entity A manages and evaluates the performance of its investments on a fair value basis. Information about Entity A's financial results, including changes in the fair value of its investments, are provided by the general partner to the limited partners periodically. ##### [946-10-55-33](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-33) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:65db6103f867e5672488b0bd39a3f35225b43f7e6fb7b4c70194a7bc0d0b68da Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A has plans to dispose of its interests in each of its investees during the 10-year stated life of the partnership to realize returns from the capital appreciation of its investees. Those disposals include the sale of the interests for cash or the distribution of marketable equity securities to investors following a successful public offering of an investee's securities. ##### [946-10-55-34](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-34) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:f53fe000174ea1db0a7c234809067129b02a849a60b60645242de6b8363cddc9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. From formation in 20X1 to December 31, 20X3, Entity A has the fundamental characteristics of an investment company because all of the following conditions exist: 1. a Entity A obtained funds from investors (the general partner and the limited partners) and is providing those investors with investment management services. 2. b Entity A's business purpose and only substantive activity is acquiring interests in operating companies with the objective of realizing returns over its life from the capital appreciation of the investments. Entity A has identified exit strategies for its investments to realize the capital appreciation. 3. c Entity A does not have an objective of obtaining returns or benefits other than capital appreciation from its investments. ##### [946-10-55-35](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-35) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:d9ec4f8db2a343c83428bf759abfb92048e74889e226b3c1282d9efacfdcbb04 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A also has all of the following typical characteristics of an investment company: 1. a Entity A is funded by multiple investors. 2. b The limited partners of Entity A hold a significant interest in the partnership and are not related to the investment manager (the general partner). 3. c Ownership in Entity A is represented by partnership interests acquired through capital contributions. 4. d Investments are managed, and their performance is evaluated on a fair value basis. ##### [946-10-55-36](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-36) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:10379787ded184bfdb2ef671f4a703c9c79036729902556478286a3e93e49ba3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A does not hold more than one investment until 20X3. However, that is because during each of the years 20X1, 20X2, and part of 20X3, it is in its start-up period and has not yet fully executed its investment plan to acquire multiple investments because it could not identify suitable investment opportunities. ##### [946-10-55-37](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-37) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:9ea7e050bb44c5f4d6a0b608043edbe768bce4cb24b1a92edddd547b6f2f15bd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A is an investment company from formation in 20X1 to December 31, 20X3. It has all the fundamental characteristics of an investment company. In addition, although Entity A does not possess all of the typical characteristics of an investment company, its activities are consistent with those of an investment company. ##### [946-10-55-38](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-38) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:22238f3678761870af977561543746491013ddf061b6b17989ce446166bf3b51 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity C, an investment fund, is formed in 20X1 by six corporations in the technology industry to invest in multiple technology start-up companies for capital appreciation. Entity D, one of the corporations, holds a 70 percent controlling financial interest in Entity C. The remaining 30 percent of the fund is owned by the other 5 corporations, which are not related to each other or Entity D. Entity D holds options at amounts other than fair value to acquire controlling financial interests in the investees of the technology fund and options to purchase assets produced by the investees, if the technology developed by the investee is successful and would benefit the operations of Entity D. No plans for exiting the investments have been identified by Entity C. Entity C is managed by an investment manager that is not related to the investors. The investors in Entity C also provide significant advice to the investment manager about potential investments. ##### [946-10-55-39](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-39) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:37335aa98024a8ab5f8f81478f412ee3ae49671aea3c3e2ad59669e643d9a477 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Even though Entity C's business purpose and substantive activities include investing for returns from capital appreciation and it has many of the typical characteristics of an investment company, Entity C is not an investment company because of both of the following conditions: 1. a Entity D, the parent of Entity C, holds options at amounts other than fair value to acquire investees of the fund and assets of the investees if the technology developed by the investee is successful and would benefit Entity D's operations. That provides Entity D with a benefit that is other than returns from capital appreciation or investment income. 2. b The investment plans of Entity C do not include exit strategies for its investments to realize returns from the capital appreciation of investees. ##### [946-10-55-40](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-40) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:e6c6e9774cc8f74a4886ac74c015a012e16c5574ce791dea86159e32c1761b83 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity E, a master fund, is formed in 20X1 with a 10-year life. The equity of Entity E is held by Entity F and Entity G, two affiliated feeder funds. Entity F and Entity G are established in conjunction with Entity E to meet legal, regulatory, tax, or other requirements. Entity F, the domestic feeder partnership, is capitalized with a 1 percent investment from the general partner and 99 percent from unaffiliated investors (with no party holding a controlling financial interest). Entity G, the offshore feeder fund, is capitalized with a 1 percent equity investment from the sponsor and 99 percent equity investments from unaffiliated investors (with no party holding a controlling financial interest). Entity H is the investment manager for the master-feeder structure and is the general partner of Entity F and the sponsor of Entity G. ##### [946-10-55-41](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-41) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:092c3d25ee8fd6ac671ba01f8db0fee20835a872bd0e37445bee8224f2238a52 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This figure illustrates the master-feeder structure. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-E24AE302-B7CE-4B39-9E2C-EA036116AA3F-low.gif) ##### [946-10-55-42](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-42) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:fbb36b2441a173ae54a08552da4f242438286d05e215857e766fbbc8eb25a5c0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The purpose of Entity E is to invest in multiple investments to generate returns solely from capital appreciation and investment income. Entity F and Entity G have communicated to investors that the sole purpose of the master-feeder structure is to provide investment opportunities for investors in separate market niches to invest in a large pool of assets. Entity E has identified exit strategies for the investments that it holds for returns from capital appreciation. In addition, Entity E manages, and evaluates the performance of, its investments on a fair value basis. Entity F and Entity G provide their investors with periodic information about the financial results of the master-feeder structure. ##### [946-10-55-43](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-43) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:4c78bc9f8162ad042e538c857fba2a7fe71828859f13cc3d6a7e8076ad4ea5fa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity E, Entity F, and Entity G each possess the fundamental characteristics of an investment company because all of the following conditions exist: 1. a Entity E, Entity F, and Entity G obtained funds from investors and are providing those investors with investment management services. 2. b The master-feeder structure's business purpose and only substantive activities, which were communicated to investors of Entity F and Entity G, are investing solely for returns from capital appreciation and investment income. 3. c Entity E has identified exit strategies for the investments it holds for returns from capital appreciation. Although Entity F and Entity G do not have an exit strategy for their interests in Entity E, they are considered to have an exit strategy for their investments because Entity E was formed in conjunction with Entity F and Entity G and holds investments on behalf of them. 4. d Entity E, Entity F, and Entity G do not have an objective of obtaining returns or benefits other than capital appreciation and investment income from their investments. ##### [946-10-55-44](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-44) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:4865815cb33c331b6d9f3b940797c612aa8eb6fb8aec1824074771b175961319 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity E, Entity F, and Entity G each also possess all of the following typical characteristics of an investment company: 1. a Entity E holds more than one investment. Both Entity F and Entity G also are considered to hold more than one investment because they were formed in conjunction with Entity E. 2. b Both Entity F and Entity G are funded by multiple investors. Entity E also is considered to be funded by multiple investors because it was formed in conjunction with Entity F and Entity G. 3. c Both Entity F and Entity G have investors that hold a significant interest in the partnership and are not related to the investment manager (Entity H). Although Entity F and Entity G are related to Entity E, Entity E is considered to have unrelated investors because it was formed in conjunction with Entity F and Entity G, which have unrelated investors. 4. d Ownership in Entity E and Entity G are represented by equity interests acquired through capital contributions. Ownership in Entity F is represented by partnership interests acquired through capital contributions. 5. e Entity E manages and evaluates the performance of investments on a fair value basis. Additionally, investors of Entity F and Entity G are provided with periodic financial information about the investing activities of Entity E, which includes information about the change in fair value of investments held. ##### [946-10-55-45](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-45) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:9f139258aa9b9da098de276ba532accee4ea88f14ffcf3fa6132e58dd76b020f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity E, Entity F, and Entity G are investment companies. They possess all the fundamental characteristics of an investment company and all the typical characteristics of an investment company, either directly or indirectly as a result of the master-feeder structure. ##### [946-10-55-46](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-46) Pending content: no Source downloaded (UTC): 2026-09-10T02:19:02.934Z to 2026-09-10T02:19:02.934Z Record version: sha256:ad4313db55249a3260c6798a12ffbc8e3ed5fb2c83a4a1d0e665374c5975fe81 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraphs 946-10-55-46 through 55-71 superseded by Accounting Standards Update No. 2013-08](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-46).