5/20/2016

Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers

SearchSECDocuments

Go

CompanyFilings|MoreSearchOptions

ABOUT

CORPORATION
FINANCE
About
AccountingandFinancial
ReportingGuidance
Complianceand
Disclosure
Interpretations
FilingReviewProcess
NoAction,Interpretive
andExemptiveLetters
Statutes,Rulesand
Forms
ContactUs

DIVISIONS

ENFORCEMENT

REGULATION

EDUCATION

FILINGS

NEWS

Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers[1]

May13,2016

Table of Contents
Thiscomplianceguideisdividedintothefollowingparts:
1.Introduction
2.RequirementsofRegulationCrowdfunding
3.IssuerDisclosure
4.LimitsonAdvertisingandPromoters
5.RestrictionsonResales
6.ExemptionfromSection12(g)
7.BadActorDisqualification
8.OtherResources
9.ContactingtheSECStaff

1. Introduction
UndertheSecuritiesActof1933,theofferandsaleofsecuritiesmustberegistered
unlessanexemptionfromregistrationisavailable.TitleIIIoftheJumpstartOur
BusinessStartups(JOBS)Actof2012addedSecuritiesActSection4(a)(6)thatprovides
anexemptionfromregistrationforcertaincrowdfundingtransactions.[2]In2015,the
CommissionadoptedRegulationCrowdfundingtoimplementtherequirementsofTitle
III.[3]Undertherules,eligiblecompanieswillbeallowedtoraisecapitalusing
RegulationCrowdfundingstartingMay16,2016.

2. Requirements of Regulation Crowdfunding

InordertorelyontheRegulationCrowdfundingexemption,certainrequirementsmust
bemet.
a.MaximumOfferingAmountof$1Million
AcompanyissuingsecuritiesinrelianceonRegulationCrowdfunding(anissuer)is
permittedtoraiseamaximumaggregateamountof$1millionina12monthperiod.In
determiningtheamountthatmaybesoldinaparticularoffering,anissuershould
count:
theamountithasalreadysold(includingamountssoldbyentitiescontrolledby,or
undercommoncontrolwith,theissuer,aswellasanyamountssoldbyany
predecessoroftheissuer)inrelianceonRegulationCrowdfundingduringthe12
monthperiodprecedingtheexpecteddateofsale,plus
theamounttheissuerintendstoraiseinrelianceonRegulationCrowdfundinginthis
offering.
Anissuerdoesnotaggregateamountssoldinotherexempt(noncrowdfunding)
offeringsduringthepreceding12monthperiodforpurposesofdeterminingtheamount
thatmaybesoldinaparticularRegulationCrowdfundingoffering.
b.InvestorsSubjecttoLimits
Individualinvestorsarelimitedintheamountstheyareallowedtoinvestinall
RegulationCrowdfundingofferingsoverthecourseofa12monthperiod:
Ifeitherofaninvestorsannualincomeornetworthislessthan$100,000,thenthe

https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm

1/7

5/20/2016

Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers

investorsinvestmentlimitisthegreaterof:
$2,000or
5percentofthelesseroftheinvestorsannualincomeornetworth.
Ifbothannualincomeandnetworthareequaltoormorethan$100,000,then
theinvestorslimitis10percentofthelesseroftheirannualincomeornetworth.
Duringthe12monthperiod,theaggregateamountofsecuritiessoldtoan
investorthroughallRegulationCrowdfundingofferingsmaynotexceed$100,000,
regardlessoftheinvestorsannualincomeornetworth.
Spousesareallowedtocalculatetheirnetworthandannualincomejointly.Thischart
illustratesafewexamplesoftheinvestmentlimits:
Investor
Annual
Income

Investor
NetWorth

Calculation

$30,000

$105,000

Greaterof$2,000or5%of$30,000
($1,500)

$2,000

$150,000

$80,000

Greaterof$2,000or5%of$80,000
($4,000)

$4,000

$150,000

$100,000

10%of$100,000($10,000)

$10,000

$200,000

$900,000

10%of$200,000($20,000)

$20,000

$1,200,000

$2,000,000

10%of$1,200,000($120,000),subject
to$100,000cap

Investment
Limit[4]

$100,000

c.TransactionsConductedThroughanIntermediary
EachRegulationCrowdfundingofferingmustbeexclusivelyconductedthroughone
onlineplatform.Theintermediaryoperatingtheplatformmustbeabrokerdealerora
fundingportalthatisregisteredwiththeSECandFINRA.
Issuersmayrelyontheeffortsoftheintermediarytodeterminethattheaggregate
amountofsecuritiespurchasedbyaninvestordoesnotcausetheinvestortoexceedthe
investmentlimits,solongastheissuerdoesnothaveknowledgethattheinvestorwould
exceedtheinvestmentlimitsasaresultofpurchasingsecuritiesintheissuersoffering.
d.Eligibility
CertaincompaniesarenoteligibletousetheRegulationCrowdfundingexemption.These
include:
nonU.S.companies
companiesthatalreadyareExchangeActreportingcompanies
certaininvestmentcompanies
companiesthataredisqualifiedunderRegulationCrowdfundingsdisqualification
rules
companiesthathavefailedtocomplywiththeannualreportingrequirementsunder
RegulationCrowdfundingduringthetwoyearsimmediatelyprecedingthefilingofthe
offeringstatementand
companiesthathavenospecificbusinessplanorhaveindicatedtheirbusinessplanis
toengageinamergeroracquisitionwithanunidentifiedcompanyorcompanies.

3. Disclosure by Issuers
a.FormC
AnyissuerconductingaRegulationCrowdfundingofferingmustelectronicallyfileits
offeringstatementonFormCthroughtheCommissionsElectronicDataGathering,
AnalysisandRetrieval(EDGAR)systemandwiththeintermediaryfacilitatingthe
crowdfundingoffering.AFormCcoverpagewillbegeneratedwhentheissuerprovides
informationinXMLbasedfillabletextboxesontheEDGARsystem.Otherrequired
disclosurethatisnotrequestedintheXMLtextboxesmustbefiledasattachmentsto
FormC.ThereisnotaspecificpresentationformatrequiredfortheattachmentstoForm

https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm

2/7

5/20/2016

Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers

Chowever,theformdoesincludeanoptionalQuestionandAnswerformatthat
issuersmayusetoprovidethedisclosuresthatarerequiredbutnotincludedintheXML
portion.
b.OfferingStatementDisclosure
TheinstructionstoFormCindicatetheinformationthatanissuermustdisclose,
including:
informationaboutofficers,directors,andownersof20percentormoreoftheissuer
adescriptionoftheissuersbusinessandtheuseofproceedsfromtheoffering
thepricetothepublicofthesecuritiesorthemethodfordeterminingtheprice,
thetargetofferingamountandthedeadlinetoreachthetargetofferingamount,
whethertheissuerwillacceptinvestmentsinexcessofthetargetofferingamount
certainrelatedpartytransactionsand
adiscussionoftheissuersfinancialconditionandfinancialstatements.
Thefinancialstatementsrequirementsarebasedontheamountofferedandsoldin
relianceonRegulationCrowdfundingwithinthepreceding12monthperiod:
Forissuersoffering$100,000orless:Financialstatementsoftheissuerandcertain
informationfromtheissuersfederalincometaxreturns,bothcertifiedbythe
principalexecutiveofficer.If,however,financialstatementsoftheissuerare
availablethathaveeitherbeenreviewedorauditedbyapublicaccountantthatis
independentoftheissuer,theissuermustprovidethosefinancialstatementsinstead
andwillnotneedtoincludetheinformationreportedonthefederalincometax
returnsorthecertificationoftheprincipalexecutiveofficer.
Issuersofferingmorethan$100,000butnotmorethan$500,000:Financial
statementsreviewedbyapublicaccountantthatisindependentoftheissuer.If,
however,financialstatementsoftheissuerareavailablethathavebeenauditedbya
publicaccountantthatisindependentoftheissuer,theissuermustprovidethose
financialstatementsinsteadandwillnotneedtoincludethereviewedfinancial
statements.
Issuersofferingmorethan$500,000:
ForfirsttimeRegulationCrowdfundingissuers:Financialstatementsreviewedby
apublicaccountantthatisindependentoftheissuer,unlessfinancialstatements
oftheissuerareavailablethathavebeenauditedbyanindependentauditor.
ForissuersthathavepreviouslysoldsecuritiesinrelianceonRegulation
Crowdfunding:Financialstatementsauditedbyapublicaccountantthatis
independentoftheissuer.
c.AmendmentstoOfferingStatement
Foranyofferingthathasnotyetbeencompletedorterminated,anissuercanfileon
FormC/Aanamendmenttoitsofferingstatementtodisclosechanges,additionsor
updatestoinformation.Anamendmentisrequiredforchanges,additionsorupdates
thatarematerial,andinthoserequiredinstancestheissuermustreconfirmoutstanding
investmentcommitmentswithin5businessdays,ortheinvestorscommitmentwillbe
consideredcancelled.
d.ProgressUpdates
Anissuermustprovideanupdateonitsprogresstowardmeetingthetargetoffering
amountwithin5businessdaysafterreaching50%and100%ofitstargetoffering
amount.TheseupdateswillbefiledonFormCU.Iftheissuerwillacceptproceedsover
thetargetofferingamount,italsomustfileafinalFormCUreflectingthetotalamount
ofsecuritiessoldintheoffering.If,however,theintermediaryprovidesfrequent
updatesonitsplatformregardingtheprogressoftheissuerinmeetingthetarget
offeringamount,thentheissuerwillneedtofileonlyafinalFormCUtodisclosethe
totalamountofsecuritiessoldintheoffering.
e.AnnualReports
AnissuerthatsoldsecuritiesinaRegulationCrowdfundingofferingisrequiredto
provideanannualreportonFormCARnolaterthan120daysaftertheendofitsfiscal
year.ThereportmustbefiledonEDGARandpostedontheissuerswebsite.Theannual

https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm

3/7

5/20/2016

Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers

reportrequiresinformationsimilartowhatisrequiredintheofferingstatement,
althoughneitheranauditnorareviewofthefinancialstatementsisrequired.Issuers
mustcomplywiththeannualreportingrequirementuntiloneofthefollowingoccurs:
(1)theissuerisrequiredtofilereportsunderExchangeActSections13(a)or15(d)
(2)theissuerhasfiledatleastoneannualreportandhasfewerthan300holdersof
record
(3)theissuerhasfiledatleastthreeannualreportsandhastotalassetsthatdonot
exceed$10million
(4)theissueroranotherpartypurchasesorrepurchasesallofthesecuritiesissued
pursuanttoRegulationCrowdfunding,includinganypaymentinfullofdebtsecurities
oranycompleteredemptionofredeemablesecuritiesor
(5)theissuerliquidatesordissolvesinaccordancewithstatelaw.
AnyissuerterminatingitsannualreportingobligationsisrequiredtofilenoticeonForm
CTRreportingthatitwillnolongerprovideannualreportspursuanttotherequirements
ofRegulationCrowdfunding.

4. Limits on Advertising and Promoters

AnissuermaynotadvertisethetermsofaRegulationCrowdfundingofferingexceptina
noticethatdirectsinvestorstotheintermediarysplatformandincludesnomorethan
thefollowinginformation:
(a)astatementthattheissuerisconductinganofferingpursuanttoSection4(a)(6)
oftheSecuritiesAct,thenameoftheintermediarythroughwhichtheofferingis
beingconducted,andalinkdirectingthepotentialinvestortotheintermediarys
platform
(b)thetermsoftheoffering,whichmeanstheamountofsecuritiesoffered,the
natureofthesecurities,thepriceofthesecurities,andtheclosingdateofthe
offeringperiodand
(c)factualinformationaboutthelegalidentityandbusinesslocationoftheissuer,
limitedtothenameoftheissuerofthesecurity,theaddress,phonenumber,and
websiteoftheissuer,theemailaddressofarepresentativeoftheissuer,andabrief
descriptionofthebusinessoftheissuer.
Althoughadvertisingthetermsoftheofferingoffoftheintermediarysplatformis
limitedtoabriefnotice,anissuermaycommunicatewithinvestorsandpotential
investorsaboutthetermsoftheofferingthroughcommunicationchannelsprovidedon
theintermediarysplatform.Anissuermustidentifyitselfastheissuerandpersons
actingonbehalfoftheissuermustidentifytheiraffiliationwiththeissuerinall
communicationsontheintermediarysplatform.
Anissuerisallowedtocompensateotherstopromoteitscrowdfundingofferingsthrough
communicationchannelsprovidedbyanintermediary,butonlyiftheissuertakes
reasonablestepstoensurethatthepromoterclearlydisclosesthecompensationwith
eachcommunication.

5. Restrictions on Resale
Securitiespurchasedinacrowdfundingtransactiongenerallycannotberesoldfora
periodofoneyear,unlessthesecuritiesaretransferred:
(1)totheissuerofthesecurities
(2)toanaccreditedinvestor
(3)aspartofanofferingregisteredwiththeCommissionor
(4)toamemberofthefamilyofthepurchaserortheequivalent,toatrustcontrolled
bythepurchaser,toatrustcreatedforthebenefitofamemberofthefamilyofthe
purchaserortheequivalent,orinconnectionwiththedeathordivorceofthe
purchaserorothersimilarcircumstance.

6. Exemption from Section 12(g)

Section12(g)oftheExchangeActrequiresanissuerwithtotalassetsofmorethan$10
millionandaclassofsecuritiesheldofrecordbyeither2,000persons,or500persons

https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm

4/7

5/20/2016

Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers

whoarenotaccreditedinvestors,toregisterthatclassofsecuritieswiththe
Commission.However,securitiesissuedpursuanttoRegulationCrowdfundingare
conditionallyexemptedfromtherecordholdercountunderSection12(g)ifthefollowing
conditionsaremet:
theissueriscurrentinitsongoingannualreportsrequiredpursuanttoRegulation
Crowdfunding
hastotalassetsasoftheendofitslastfiscalyearof$25millionorlessand
hasengagedtheservicesofatransferagentregisteredwiththeSEC.
Asaresult,Section12(g)registrationisrequiredifanissuerhas,onthelastdayofits
fiscalyear,totalassetsgreaterthan$25millionandtheclassofequitysecuritiesisheld
bymorethan2,000persons,or500personswhoarenotaccreditedinvestors.Inthat
circumstance,anissuerisgrantedatwoyeartransitionperiodbeforeitisrequiredto
registeritsclassofsecuritiespursuanttoSection12(g),solongasittimelyfilesallof
theannualreportsrequiredbyRegulationCrowdfundingduringsuchperiod.
AnissuerseekingtoexcludeapersonfromtherecordholdercountofSection12(g)is
responsiblefordemonstratingthatthesecuritiesheldbythepersonwereinitiallyissued
inanofferingmadeunderSection4(a)(6).

7. Bad Actor Disqualification

Rule503ofRegulationCrowdfundingincludesbadactordisqualificationprovisionsthat
disqualifyofferingsiftheissuerorothercoveredpersonshaveexperienceda
disqualifyingevent,suchasbeingconvictedof,orsubjecttocourtoradministrative
sanctionsfor,securitiesfraudorotherviolationsofspecifiedlaws.
a.CoveredPersons
UnderstandingthecategoriesofpersonsthatarecoveredbyRule503isimportant
becauseissuersarerequiredtoconductafactualinquirytodeterminewhetherany
coveredpersonhashadadisqualifyingevent,andtheexistenceofsuchaneventwill
generallydisqualifytheofferingfromrelianceonRegulationCrowdfunding.
Coveredpersonsinclude:
theissuer,includingitspredecessorsandaffiliatedissuers
directors,officers,generalpartnersormanagingmembersoftheissuer
beneficialownersof20%ormoreoftheissuersoutstandingvotingequitysecurities,
calculatedonthebasisofvotingpower
promotersconnectedwiththeissuerinanycapacityattimeofsaleand
personscompensatedforsolicitinginvestors,includingthegeneralpartners,
directors,officersormanagingmembersofanysuchsolicitor.
b.DisqualifyingEvents
Underthefinalrule,disqualifyingeventsinclude:
Certaincriminalconvictions
Certaincourtinjunctionsandrestrainingorders
Certainfinalordersofcertainstateandfederalregulators
CertainSECdisciplinaryorders
CertainSECceaseanddesistorders
Suspensionorexpulsionfrommembershipinaselfregulatoryorganization(SRO),
suchasFINRA,orbeingbarredfromassociationwithanSROmember
SECstopordersandorderssuspendingtheRegulationAexemptionand
U.S.PostalServicefalserepresentationorders.
Manydisqualifyingeventsincludealookbackperiod(forexample,acourtinjunction
thatwasissuedwithinthelastfiveyearsoraregulatoryorderthatwasissuedwithin
thelasttenyears).Thelookbackperiodismeasuredfromthedateofthedisqualifying
eventforexample,theissuanceoftheinjunctionorregulatoryorderandnotthedate
oftheunderlyingconductthatledtothedisqualifyingeventtothedateofthefilingof

https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm

5/7

5/20/2016

Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers

anofferingstatement.
Disqualificationwillnotariseasaresultofdisqualifyingeventsrelatingtoany
conviction,order,judgment,decree,suspension,expulsionorbarthatoccurredbefore
May16,2016,theeffectivedateofRegulationCrowdfunding.Mattersthatexisted
beforetheeffectivedateofRegulationCrowdfunding,arestillwithintherelevantlook
backperiod,andwouldotherwisebedisqualifyingare,however,requiredtobedisclosed
intheissuersofferingstatement.
c.ExceptionsandWaivers
RegulationCrowdfundingprovidesanexceptionfromdisqualificationwhentheissueris
abletodemonstratethatitdidnotknowand,intheexerciseofreasonablecare,could
nothaveknownthatacoveredpersonwithadisqualifyingeventparticipatedinthe
offering.
Thestepsanissuershouldtaketoexercisereasonablecarewillvaryaccordingto
particularfactsandcircumstances.Aninstructiontotherulestatesthatanissuerwill
notbeabletoestablishthatithasexercisedreasonablecareunlessithasmade,inlight
ofthecircumstances,factualinquiryintowhetheranydisqualificationsexist.
Disqualificationwillnotariseif,beforethefilingoftheofferingstatement,thecourtor
regulatoryauthoritythatenteredtherelevantorder,judgmentordecreeadvisesin
writingwhetherintherelevantjudgment,orderordecreeorseparatelytothe
CommissionoritsstaffthatdisqualificationunderRegulationCrowdfundingshouldnot
ariseasaconsequenceofsuchorder,judgmentordecree.
RegulationCrowdfundingalsoprovidesfortheabilitytoseekwaiversfrom
disqualificationbytheCommissionuponashowingofgoodcausethatitisnotnecessary
underthecircumstancesthattheexemptionbedenied.

8. Other Resources
TheadoptingreleaseRegulationCrowdfundingcanbefoundontheSECswebsiteat
http://www.sec.gov/rules/final/2015/339974.pdf.
RegulationCrowdfunding(17CFR227.100etseq.)canbeaccessedthroughthe
CorporationFinancesectionoftheSECswebsiteat
http://www.sec.gov/divisions/corpfin/ecfrlinks.shtml.
Youcanalsosubmitcomplaintsortipsaboutpossiblesecuritieslawsviolationsonthe
SECsquestionsandcomplaintspageathttp://www.sec.gov/complaint.shtml.

9. Contacting the SEC Staff

TheSECstaffishappytoassistwithquestionsregardingRegulationCrowdfunding.For
issuerquestions,youmaycontacttheDivisionofCorporationFinancesOfficeofSmall
BusinessPolicyviaemailatorbytelephoneat(202)5513460.Forintermediary
questions,youmaycontacttheDivisionofTradingandMarkets,OfficeofChiefCounsel,
at(202)5515777,orsearchforyouranswerintheSmallBusinessComplianceGuide
forIntermediaries.

[1]ThisguidewaspreparedbythestaffoftheU.S.SecuritiesandExchange
Commission(theCommission)asasmallentitycomplianceguideunderSection212
oftheSmallBusinessRegulatoryEnforcementFairnessActof1996,asamended.The
guidesummarizesandexplainstherulesadoptedbytheSEC,butisnotasubstitutefor
anyruleitself.Onlytheruleitselfcanprovidecompleteanddefinitiveinformation
regardingitsrequirements.
[2]CrowdfundingisarelativelynewandevolvingmethodofusingtheInternettoraise
capitaltosupportawiderangeofideasandventures.Anentityorindividualraising
fundsthroughcrowdfundingtypicallyseekssmallindividualcontributionsfromalarge
numberofpeople.Individualsinterestedinthecrowdfundingcampaignmembersof
thecrowdmayshareinformationabouttheproject,cause,ideaorbusinesswith
eachotherandusetheinformationtodecidewhethertofundthecampaignbasedon
thecollectivewisdomofthecrowd.
[3]TheRegulationCrowdfundingadoptingreleaseisavailableat
http://www.sec.gov/rules/final/2015/339974.pdf.Thestaffhasalsoissuedasmall
entitycomplianceguideconcerningregistrationoffundingportals,whichisavailableat

https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm

6/7

5/20/2016

Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers

http://www.sec.gov/divisions/marketreg/tmcompliance/fpregistrationguide.htm.
[4]ThisInvestmentLimitcolumnreflectstheaggregateinvestmentlimitacrossall
RegulationCrowdfundingofferingswithina12monthperiod.

Modified:May17,2016
SiteMap | Accessibility | Contracts | Privacy | InspectorGeneral | AgencyFinancialReport | Budget&Performance | Careers | Contact
FOIA | NoFEARAct&EEOData | WhistleblowerProtection | Votes | OpenGovernment | PlainWriting | Links | Investor.gov | USA.gov

https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm

7/7