Definition of Substantial Investment in CTFA Exam

B

The statement in the question is true. A substantial investment is a significant holding of shares or equity in a company by an individual, group, or entity. A substantial investment is generally considered to be any investment that comprises more than 15 percent of a company's voting shares or greater than 35 percent of its equity.

The significance of these thresholds is that they trigger certain regulatory and disclosure requirements. When an investor owns more than 15% of a company's voting shares or greater than 35% of its equity, they are deemed to have significant control over the company's decision-making process, and this control must be disclosed to the appropriate regulatory authorities.

For example, in the United States, if an individual or group acquires more than 5% of a publicly traded company's stock, they are required to file a Schedule 13D with the Securities and Exchange Commission (SEC). This filing discloses the investor's identity, their intentions with respect to the investment, and any agreements or arrangements they have made with other investors.

In addition to regulatory requirements, substantial investments can also have significant implications for the investor and the company. For example, if an investor acquires a substantial stake in a company, they may be able to influence the company's strategic direction, management decisions, and financial performance. On the other hand, a company that has a significant shareholder may be subject to increased scrutiny from regulators and investors, which could affect its stock price and reputation.

In conclusion, a substantial investment is defined as any investment comprising more than 15 percent of an enterprise's voting shares or greater than 35 percent of its equity, and this definition has important regulatory and practical implications for both the investor and the company.