Episode 4: Answering 3 Common Questions about Crowdfunding and Regulatory Compliance

At Core Compliance, we're often asked about the regulatory compliance around crowd funding. When do you need to file specific forms, or what limits are there on advertising? Michelle Jacko, CEO, discusses the three most common questions we're asked in this episode of the CCO Buzz.


Hello, this is Michelle Jacko, CEO of Core Compliance and Legal Services, and on this week's CCO Buzz, we will be discussing crowd funding, and specifically, three questions which we often receive, which is:

Does crowd funding involve a security? 

What type of advertising may I do when offering a crowdfunding opportunity?

And finally, what are the form filing requirements to get involved with crowdfunding?

Let's start by assuming a hypothetical. You have a wonderful new business venture, and your primary goal is to raise capital through small investments or contributions from a large number of people. Well, the Jumpstart our Business Startups Act of 2012 now provides an opportunity for companies to do just that. 

Starting in 2015 the general public now has the opportunity to participate in the early capital raising activities of startups, by way of crowdfunding. When beginning this process, one of the most important things to keep in mind is that in order to do crowdfunding, the issuer (in this case, NewCo) will need to find a broker-dealer or funding portal that will serve as the crowdfunding intermediary. 


Because when raising capital, whereby you are promising a return for monies that are received, that is, by definition, a security. The crowdfunding intermediary will need to be registered with the SEC and be a member of FINRA. The investor will then need to open an account with the crowdfunding intermediary in order to make that investment. 

What the issuer will need to think about is that in order to have this crowdfunding opportunity, the business owner will need to make certain disclosures. As a startup, this will be viewed as a higher risk opportunity for potential investors, and thus will be a speculative, illiquid security, with little opportunity to cancel a commitment. 

To get started, the issuer will first need to complete Form C, which is his offering statement, and file that through the SEC's Edgar System. This will include important information about the offering, about his company and the general information about that company, any officers and directors of the company, a description of the business, the planned use for the money raised from the offering (which is basically the use of proceeds), the target offering amount, the deadline for the offering, related party transactions, and risks specific to the company or business, along with important financial information about the company. 

The SEC offers a wonderful handbook that it makes available to provide information for new issuers on exactly what they need to do throughout this process. 

[Note: The link for that handbook can be found here - click to visit.]

With this information in hand, as the issuer, you're very excited about the opportunity, and you're ready to advertise it, perhaps posting it on social media, the website, and doing a mass mailing. 

But before doing this, it's important to consider there are inherent limits on advertising that an issuer can do. 

In fact, an issuer cannot the terms of a regulation crowdfunding offering except to provide notice that directs investors to the intermediary's platform and only discloses the offering that's being made, the name of the intermediary through which the offering is being made, and a link to the intermediary's platform. 

Other than some generic information, such as address and phone number, the name of the legal entity, and the business location of the issuer, that's really all that can be addressed.

Therefore, the issuer will need to work with the crowdfunding intermediary on any type of information related to the offering, so they can distribute that accordingly. 

Finally, as the new issuer, you will need to know what type of filings may be required. 

First, as you continue to make updates or changes to the actual offering, the issuer will need to file form C-A, which can be done through the Edgar system. As progress is being made, and as the issuer reaches, say, 50% and 100% of the target offering amount, the issuer would use form C-U to disclose this to the public, to the crowd. Form C-U would also be used if the issuer accepts proceeds over the target offering amount, and of course to file a final form disclosing the total amount of securities sold in the offering. 

Finally, the issue will have to file C-AR, regarding securities sold, no later than 120 after the end of the fiscal year, and Form T-R to report that the firm will no longer provide annual reports. 

There are a lot of considerations in this area, and a lot of compliance that is required throughout the process. Please contact us at area code 619.278.0020, and a info@corecls.com to find out more information. 

In addition, if you would like to hear more information about crowdfunding, or to have a longer podcast related to the details involved in this process, please use that contact information to let us know. 

Thank you.