# Form ADV — Investment Adviser Registration Analysis **Researched:** 2026-03-08 **Conclusion: NO registration required. NO Form ADV required.** Palace Fund LLC qualifies for the family office exclusion under the Investment Advisers Act — Section 202(a)(11)(G) and SEC Rule 202(a)(11)(G)-1. This is a complete exclusion from the definition of "investment adviser," not a filing exemption. Three conditions, all met: 1. Advises only family clients (Junwon + Sungho, father-son) ✓ 2. Wholly owned and controlled by family members (100% family, Junwon sole Managing Member) ✓ 3. Does not hold itself out as an investment adviser (no public solicitation) ✓ No Form ADV. No SEC registration. No state registration. No ongoing reporting obligations. The one change that destroys this exclusion: admitting a non-family investor. --- ## Threshold Question: Is Palace Fund LLC an "Investment Adviser"? Under Section 202(a)(11), an "investment adviser" is any person who, **for compensation**, advises others on securities. Junwon as Managing Member makes investment decisions for the LLC's members. Whether "compensation" exists is ambiguous (no documented management fee, no carried interest currently), but the SEC broadly reads this — so technically, yes, there may be adviser status. This doesn't require registration. Exemptions apply. --- ## Primary Path: Family Office Exemption — Rule 202(a)(11)(G)-1 Implemented via Dodd-Frank. Excludes "family offices" from the definition of investment adviser entirely. All three conditions must be met: ### Condition 1: Advises only "family clients" ✓ "Family clients" = lineal descendants of a common ancestor within 10 generations, plus spouses, key employees, and entities wholly owned by family clients. Junwon (son) and Sungho (father) are immediate family. Designate any shared ancestor (e.g., Sungho himself, or his parents) as the common ancestor — both are lineal descendants within 10 generations. **Both members are family clients.** No minimum number of family members required. A 2-person father-son fund qualifies. ### Condition 2: Wholly owned by family clients + exclusively controlled by family members ✓ - Ownership: Junwon (Managing Member) + Sungho (Member/LP) — 100% family clients. No outside investors. - Control: Junwon as Managing Member exercises control. Junwon is a family member. Neither AUM size nor number of members is a disqualifying factor. ### Condition 3: Does not hold itself out to the public as an investment adviser ✓ No public website offering advisory services, no advertising, no solicitation of outside investors, no public letterhead implying adviser status. **All three conditions satisfied.** Palace Fund LLC is excluded from the definition of "investment adviser." No federal registration required. --- ## Fallback: Section 203(m) Private Fund Adviser Exemption If family office exemption were somehow challenged: - **Qualifying private fund:** Palace Fund has 2 beneficial owners, not making a public offering → qualifies for Section 3(c)(1) exclusion from Investment Company Act → qualifies as a private fund - **AUM threshold:** $300K << $150M cap → qualifies - **Catch:** This path requires **Exempt Reporting Adviser (ERA)** status — filing a truncated Form ADV (Items 1, 2, 3, 6, 7, 10, 11 only) within 60 days of commencing advisory activity, then annually Not needed given the family office exemption, but available as fallback. --- ## California (DFPI) Registration **Not required.** Section 203A(b)(1)(B) of the Advisers Act preempts states from requiring registration of any entity excluded from the federal adviser definition under Section 202(a)(11). Because the family office rule is an *exclusion from the definition* (not merely a registration exemption), California cannot require registration. California's antifraud provisions still apply. --- ## Operating Agreement Recommendations To lock in the family office exemption, the OA should include: 1. **Membership restricted to family clients** as defined in Rule 202(a)(11)(G)-1 2. **Transfer restriction** — no assignment of membership interests to non-family clients 3. **Control reserved to family members** 4. **Statement** that the fund does not hold itself out to the public as an investment adviser 5. **No management fee or carried interest** documented (weakens the "compensation" argument and keeps the threshold question clean) **Critical:** A single non-family investor destroys the family office exemption retroactively. --- ## What to Watch For - Don't add outside investors — ever, without re-evaluating - Don't advertise or post publicly as an "investment adviser" — this is the regulated title that triggers IA Act obligations - "Fund manager" or "portfolio manager" is fine — it's a descriptive title for what you literally do, not a regulated designation - Maintain a family client roster as family circumstances change - Anti-fraud provisions (federal + state) still apply even with the exemption --- ## Sources - SEC Final Rule: Family Offices (IA-3220) - eCFR Rule 275.202(a)(11)(G)-1 - SEC Staff Responses to Questions About the Family Office Rule - 17 CFR § 275.203(m)-1 (Cornell LII) - California Private Fund Adviser Exemption (10 Cal. Code Regs. § 260.204.9)