Meta Description: Understand the legal framework of U.S. Regulation Crowdfunding (Reg CF). This guide covers issuer requirements, investor limits for non-accredited individuals, disclosure obligations (Form C), and the critical role of SEC-registered funding portals under the JOBS Act’s Title III.
The rise of investment-based crowdfunding has democratized access to capital for small businesses and investment opportunities for the general public. However, where there are investments, securities laws follow. In the United States, the primary legal framework governing this process is Regulation Crowdfunding (Reg CF), established under Title III of the JOBS Act (Jumpstart Our Business Startups Act).
Reg CF created a specific exemption from the traditional registration requirements of federal securities law, allowing eligible companies to solicit investments from both accredited and non-accredited investors across the internet. While this is a powerful tool for capital formation, it comes with strict compliance and disclosure obligations that all prospective issuers must understand.
Signed into law in 2012, the JOBS Act aimed to ease the burdens on small businesses raising capital. Reg CF, which became effective in 2016, is the rule that implemented the Act’s vision for equity crowdfunding. It allows an issuer to raise a specified maximum aggregate amount over a 12-month period. Notably, the maximum offering amount has been increased from the original limit to up to $5 million in a 12-month period, significantly expanding the utility of this exemption.
Caution Box: Federal Preemption
Securities sold under Reg CF are designated as “covered securities.” This provides an immense benefit to issuers by preempting most state securities laws, commonly known as “Blue Sky laws,” simplifying the process by largely removing the need for state-by-state registration.
For a company to conduct an offering under Reg CF, it must meticulously comply with the Securities and Exchange Commission (SEC) requirements. This involves specific disclosure mandates and eligibility criteria to protect the broad investor base.
An issuer must file Form C with the SEC and provide this information to investors and the intermediary funding portal. This ensures all potential investors receive standardized, material information. Required disclosures include:
The required financial statements depend on the total amount being raised in the 12-month period:
| Raise Amount (12 Months) | Financial Statement Requirement |
|---|---|
| Up to $124,000 (approx.) | Certified by the principal executive officer, with information from the company’s tax returns. |
| Up to $5 Million (Initial Offer) | Reviewed financial statements by an independent public accountant. |
| Subsequent Raises / Audited History | Audited financial statements by an independent auditor. |
The legal obligations do not end upon closing the offering. Issuers must continue to file an annual report (Form C-AR) with the SEC. Failure to comply with these ongoing reporting requirements can lead to ineligibility for future Reg CF raises.
A central feature of Reg CF is the inclusion of the general public—individuals who are non-accredited investors. To protect these investors, the SEC imposes strict limits on how much they can invest across all Reg CF offerings in any 12-month period.
As of recent adjustments, the investment limits are tiered based on the investor’s annual income and net worth (excluding their primary residence). The threshold for determining the cap is currently around $124,000:
For accredited investors, there is typically no limit on the amount they can invest in a Reg CF offering.
All Reg CF offerings must be conducted exclusively through a single online platform that acts as an intermediary. This platform must be either a registered broker-dealer or a Funding Portal registered with the SEC and a member of the Financial Industry Regulatory Authority (FINRA).
The role of the funding portal extends beyond just hosting the campaign. The portal is legally required to:
Crowdfunding under Reg CF is a powerful exemption but requires diligent compliance to avoid regulatory sanctions and liability for misrepresentation.
Regulation Crowdfunding (Reg CF) is the primary federal exemption that allows U.S. companies to raise capital from the public, including non-accredited investors. It is governed by the SEC under the JOBS Act, permitting raises up to $5 million annually. Success hinges on rigorous disclosure (Form C), using a registered funding portal, enforcing investor investment limits, and meeting continuous post-raise reporting requirements to ensure ongoing compliance with securities law.
Q: What is the biggest risk for an investor in a Reg CF offering?
A: The primary risks are the speculative nature of early-stage ventures and the illiquidity of the investment. Securities purchased under Reg CF generally cannot be resold for one year, and a secondary market may not exist even after that period, meaning you may have to hold the investment indefinitely.
Q: Can a non-U.S. company use Regulation Crowdfunding?
A: No. The Reg CF exemption is not available to non-U.S. companies, as well as public companies and investment companies.
Q: What is the difference between an accredited and a non-accredited investor in this context?
A: An accredited investor typically meets certain income ($200k individual/$300k joint) or net worth ($1M excluding primary residence) thresholds and faces no investment limits under Reg CF. A non-accredited investor is anyone else, and their investment amount is capped to protect them from excessive risk.
Q: What is the SEC Form C?
A: Form C is the offering document that an issuer must file with the SEC before an offering can commence. It contains all the required legal disclosures about the company, its financial condition, risks, and the terms of the offering.
Q: Does Reg CF exempt the issuer from all liability?
A: No. While Reg CF provides an exemption from registration, it does not exempt the issuer from the antifraud provisions of federal and state securities laws. The issuer can still be held liable for misstatements or omissions of material facts in their disclosures.
Disclaimer: This content is generated by an AI assistant based on publicly available legal information and is for informational purposes only. It does not constitute specific legal or financial advice. All individuals or entities considering a capital raise or investment should consult with a qualified Legal Expert or Financial Expert to discuss their particular situation.
Regulation Crowdfunding, Reg CF, JOBS Act, Title III, accredited investor, non-accredited investor, funding portal, SEC, Form C, securities law, capital raise, investment limits, disclosure obligations, ongoing reporting, Blue Sky laws, private placement, equity crowdfunding, CROWDFUND Act, US Federal Law, Compliance
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