Regulation Crowdfunding for Issuers
Regulation Crowdfunding (Reg CF) lets an eligible company raise up to $5 million in a 12-month period from the general public, including non-accredited investors, through an SEC-registered intermediary such as a funding portal. The company files a Form C, provides financial statements and updates investors annually. Investor investment amounts are capped based on income and net worth. Investment companies and funds cannot use it, which rules out most funds.
How it works
- The issuer chooses a registered funding portal or broker-dealer.
- It files a Form C with the SEC and gives it to investors and the platform, with financial statements and a description of the business.
- The offering runs on the platform for a stated period with a funding target.
- Investors commit funds, and the money is held until the target is reached.
- After closing, the issuer files annual reports and may need to update investors on certain events.
Key limits
| Item | Limit |
|---|---|
| Raise per 12 months | $5 million |
| Investor caps | Based on annual income and net worth for non-accredited investors, with higher flexibility for accredited investors |
| Financial statements | Tiered: certified, reviewed or audited, depending on the amount raised |
| Resale | Restricted for one year with limited exceptions |
Who cannot use it
- Companies organized outside the United States.
- Companies subject to Exchange Act reporting requirements.
- Investment companies and companies that would be investment companies but for an exclusion, which excludes most private funds.
- Companies disqualified under the bad actor rules.
- Companies with no specific business plan or whose plan is to merge with an unidentified company.
Pros and cons
- Advantage: access to a broad pool of small investors and public marketing through the platform.
- Advantage: a federal framework that preempts state registration, with state notice filings.
- Drawback: public disclosure of financial information and ongoing reporting.
- Drawback: platform fees and many small investors to manage.
- Drawback: many shareholders can complicate later fundraising.
How it compares
Reg CF suits operating businesses and some real estate companies that want a retail investor base and can accept disclosure. It is not available for funds. Sponsors raising from accredited investors usually prefer Rule 506. See 506(b) vs 506(c) and Regulation A for larger raises from the public.
Free consultation with a partner attorney. No cost, no obligation.
Book Free ConsultationFrequently asked questions
Can a fund use Regulation Crowdfunding?
No. Investment companies and companies relying on investment company exclusions are not eligible.
Do I need an audit?
The financial statement requirement rises with the amount raised. Larger raises require reviewed or audited statements.
Can I advertise the offering?
You can use limited notices directing people to the portal. Most promotion happens on the platform.
Is there a minimum raise?
You set a target, and the funds are held until the target is reached.