Reg CF

Regulation Crowdfunding (Reg CF) is a rule established by the Securities and Exchange Commission (SEC) under the JOBS Act (Jumpstart Our Business Startups Act) to facilitate capital formation for startups and small businesses through crowdfunding. Reg CF allows these companies to raise capital from a broad investor base, including non-accredited investors, through online crowdfunding platforms registered with the SEC.

Key Points of Reg CF:

1. Investment Limits:

   • Individual investors are limited in the amount they can invest in crowdfunding offerings during a 12-month period. The limits are based on the investor’s annual income or net worth, designed to protect less experienced investors from significant financial loss.
   • Investors with an annual income or net worth less than $107,000 can invest the greater of $2,200 or 5% of the lesser of their annual income or net worth.
   • For those with annual income and net worth of $107,000 or more, the limit is 10% of the lesser of their annual income or net worth, with a cap of $107,000.

2. Offering Limits:

   • Companies can raise up to $5 million in a 12-month period under Reg CF, increased from the initial limit of $1.07 million as part of the SEC’s 2021 amendments to support broader access to capital.

3. Eligible Companies:

   • Most U.S.-based companies can use Reg CF, except those that are non-compliant with SEC requirements, foreign companies, investment companies, blank-check companies, and companies that have failed to provide ongoing reporting required by Reg CF.

4. Intermediaries:

   • Companies must conduct their crowdfunding campaigns through SEC-registered intermediaries, either a broker-dealer or a funding portal. These platforms play a crucial role in the process, including providing disclosures, ensuring investor education, and facilitating communication between issuers and investors.

5. Disclosure Requirements:

   • Companies are required to file specific disclosures with the SEC, such as Form C, which includes information about the business, its financial condition, the terms of the offering, use of proceeds, and more.
   • Audited financial statements are required if the company raises more than $1.235 million. For offerings up to $124,000, financial statements certified by the principal executive officer are acceptable.

6. Restrictions and Resale:

   • Securities purchased in a Reg CF offering cannot be resold for one year, with some exceptions (e.g., transfers to accredited investors, the issuer, family members, or in connection with death or divorce).

7. Reporting Obligations:

   • Companies that have raised funds under Reg CF are required to provide annual reports to the SEC and investors, detailing their ongoing financial condition and business performance.

8. Benefits and Risks:

   • Benefits: Reg CF democratizes investment opportunities, enabling everyday investors to participate in early-stage financing and allowing startups to access capital without traditional banking or venture capital requirements.
   • Risks: Crowdfunding investments are highly speculative, typically illiquid, and come with a higher risk of loss compared to traditional investments.

Reg CF represents a significant step in opening investment opportunities to the general public while providing a pathway for startups and small businesses to access funding in a regulated environment.