BASIC PARAMETERS OF REGULATION CF
A crowdfunding offering has to meet several requirements.
The offering has to be made through a registered broker-dealer or through a registered crowdfunding portal. Although a broker-dealer can make recommendations as to the purchase of security, a mere crowdfunding portal cannot. Of course, the broker-dealer or portal is entitled to be compensated for its services in reviewing the offering and supervising offering procedures, and for hosting the offering on its website.
A company issuing securities in reliance on Regulation CF is permitted to raise a maximum of $1 million in any 12 month period.
Each investor is limited in the amount he or she can invest in ALL crowdfunding offerings over any 12 month period. If either an investor’s annual income or net worth is less than $100,000, then the investor’s investment limit is the greater of $2,000, or 5% of the lesser of the investor’s annual income or net worth. Since most Americans have annual incomes and net worth lower than this threshold amount, the maximum they can invest in any crowdfunding offering is $2,000 per year.
If an investor’s annual income and net worth are equal to or more than $100,000, then the investors limit is 10% of the lesser of their annual income or net worth, but, not to exceed $100,000, regardless of the investor’s annual income or net worth.
In calculating these numbers, spouses are allowed to calculate the net worth and annual income jointly.
Not all companies are able to use Regulation CF. The company must be based in the United States, and cannot be an investment company, a company which has failed to comply with annual reporting requirements under prior Regulation CF offerings, companies that are already reporting with the SEC, and companies which have no specific business plan or state that they intend to engage in a merger with an identified company. In addition,” bad actors” are disqualified from being officers, directors, promoters, or significant shareholders of a company which desires to carry out a Regulation CF offering.
Prior to posting its offering materials on a portal, the company has to file a notice filing with the SEC, and has to post updates and annual reports.