How does an issuer become an “inadvertent” investment company?
Because the definition of an investment company is so broad, a company that holds substantial minority interests in other companies that it does not control, or an operating company that temporarily holds investment securities constituting a large percentage of its assets (for example, as the result of a capital raising exercise), may find itself to be an “inadvertent investment company”. In many cases, this determination is complicated by the difficulty of ascertaining the business in which the company is “primarily” engaged, or of valuing the company’s “investment securities” and other assets for the purpose of determining whether it meets the 40 per cent value test.
