There is no legal definition of a hedge fund rather the term comes for a historic description of a private fund using hedging as part of its investment strategy.  Now the term hedge fund relates to a non-registered investment company that is not subject to the Investment Act of 1940.  The two main sections of the Investment Act that relate to hedge funds are section 3(c)1 section and 3(c)7. 

The primary exceptions outlined in3(c)1 are funds with less than 100 persons investing.  Persons can be individuals or corporations investing for a retirement plan however if a corporation owns more than 10% then the people behind the corporation must be counted as individuals.  A knowledgeable person is not counted as part of the 100.

Section 3(c)7 outlines the requirements to be a qualified purchaser in order to invest in a non-registered fund.  Persons must have $5million in investable assets not including their primary residence, alternatively, IFAs with pool money of $25million or mutual funds.  Funds have a cap of 499 persons after which the fund must register with the SEC.