Regulation Crowdfunding (CF or Reg CF) is an exemption under the Securities Act of 1933 that allows small companies and startups to raise capital from a large number of people through crowdfunding campaigns on SEC-registered platforms. This exemption enables companies to raise up to $1.07 million in a 12-month period by issuing securities to both accredited and non-accredited investors.
Crowdfunding platforms are intermediaries that provide an online portal for issuers to conduct their offerings, as well as provide an opportunity for investors to find and invest in private companies. In order to use the Reg CF exemption, companies must file offering documents on the SEC’s EDGAR system and post the offering on an SEC-approved crowdfunding platform.
Reg CF is intended to provide small businesses and entrepreneurs with access to capital, while also providing investors with an opportunity to invest in early-stage companies. It also allows for a wide range of investors to participate, regardless of income or net worth.
The SEC also put in place certain limitations on how much can be raised, how much an individual can invest, and also disclosure requirement for companies using this exemption. It also requires the companies to file annual reports with the SEC and providing investors with certain disclosures and information about the company, such as its business plan and financial statements.
It’s worth noting that Regulation CF is a relatively new exemption, and some of the final details of the rules and regulations may still be tweaked, it may also be subject to a state specific laws and regulations. Companies considering Reg CF should consult a securities attorney and an accountant to understand the requirements, as well as the benefits and limitations of this exemption.