1. Regulation Crowdfunding Rules
Crowdfunding is a relatively new and evolving method of using the Internet to raise capital to support businesses. An entity or individual raising funds through crowdfunding typically seeks small individual contributions from a large number of people. Individuals interested in the crowdfunding campaign – members of the “crowd” – may share information about the project, cause, idea or business with each other and use the information to decide whether to fund the campaign based on the collective “wisdom of the crowd.” The Jumpstart Our Business Startups Act (the “JOBS Act”), enacted on April 5, 2012, establishes a regulatory structure for businesses to raise capital through securities offerings using the Internet through crowdfunding.
Regulation CF (“Reg CF”) was adopted on October 30, 2015, allowing anyone in the US to invest in companies over the internet. Previously, private companies were generally allowed to solicit only accredited investors – those with a net worth of at least $1 million, excluding the value of their homes, or annual income of $200,000. These rules went into effect on May 16, 2016.
The JOBS Act is intended to help provide businesses with capital by making relatively low dollar offerings of securities and investments less costly. Congress included a number of provisions intended to protect investors who engage in these transactions, including investment limits, required disclosures by issuers, and a requirement to use regulated intermediaries.
Offerings under the new legislation can be made either via existing broker-dealers, or via a new class of regulated registrants called “funding portals.” These portals have to provide enough information for investors to make an educated decision on the investment, as well as conduct background checks on issuers, their owners, and their officers to reduce fraud risk. They also must make issuer information available on their portals for at least 21 days before securities can be sold, and enable conversations “among the crowd” about each offering in addition to having the option of a question-and-answer format.
Equity crowdfunding triggers the application of the federal securities laws because it involves the offer and sale of a security. Under the Securities Act of 1933 (“Securities Act”), the offer and sale of securities is required to be registered unless an exemption is available. Registered offerings are generally not feasible for raising smaller amounts of capital, as is done in a typical crowdfunding transaction, because of the high costs of conducting a registered offering and the resulting ongoing reporting obligations under the Securities Exchange Act of 1934 (“Exchange Act”) that may arise as a result of the offering.
Regulation CF added new Securities Act Section 4(a)(6), which provides an exemption from the registration requirements of Securities Act Section 5 for certain crowdfunding transactions. To qualify for the exemption under Section 4(a)(6), crowdfunding transactions by an issuer must meet specified requirements, including the following:
- the amount raised must not exceed $1,070,000 in a 12-month period;
- individual investments in all crowdfunding issuers in a 12-month period are limited to:
- the greater of $2,200 or 5 percent of the lesser of the investor’s annual income or net worth, if either the investor’s annual income or net worth of the investor is less than $107,000; and
- 10 percent of the lesser of annual income or net worth (not to exceed an amount sold of $107,000), if both the investor’s annual income and net worth is $107,000 or more; and
- transactions must be conducted through an intermediary that either is registered as a broker-dealer or is registered as a new type of entity called a “funding portal.”
In addition, Reg CF:
- adds Securities Act Section 4A, which requires, among other things, that issuers and intermediaries that facilitate transactions between issuers and investors in reliance on Section 4(a)(6) provide certain information to investors and potential investors, take other actions and provide notices and other information to the Commission;
- adds Exchange Act Section 3(h), which requires the Commission to adopt rules to exempt, either conditionally or unconditionally, “funding portals” from having to register as a broker-dealer pursuant to Exchange Act Section 15(a)(1);
- mandates that the Commission establish disqualification provisions under which an issuer would not be able to avail itself of the Section 4(a)(6) exemption if the issuer or an intermediary was subject to a disqualifying event; and
- adds Exchange Act Section 12(g)(6), which requires the Commission to adopt rules to exempt from the registration requirements of Section 12(g), either conditionally or unconditionally, securities acquired pursuant to an offering made in reliance on
- Section 4(a)(6).
All investors are recommended to read SEC’s “Bulletin on Equity Crowdfunding for Investors” before making an investment decision. For more information, please check other Educational Materials.
2. Types Of Business Investments
There are several different investment structures that are used to invest in private companies:
Common stock is the simplest form of equity. This type of shares is ordinary company shares most commonly held by founders and employees. Common shareholders are generally granted voting rights, but can be limited and often have lesser rights than those granted to preferred shareholders. Common shareholders can only claim their share of a company’s assets after the claims of debt holders and preferred equity holders (in that order) have been met.
Preferred stock is usually issued to outside investors. This type of stock may include rights that prevent or minimize the effects of dilution or grants special privileges in situations when the company is sold.
3. Investment Limits
Reg CF of the JOBS Act establishes the following investor limitations:
- Both accredited investors and non-accredited investors may invest in Reg CF crowdfunding offerings (subject to maximum based on their income and net worth);
- Over a 12-month period (on rolling basis), an individual can invest in the aggregate across all crowdfunding offerings up to:
- If either their annual income or net worth is less than $107,000, they can invest the greater of $2,200 or 5 percent of the lesser of the investor’s annual income or net worth
- If both their annual income and net worth are equal to or more than $107,000, investors are allowed to invest up to 10 percent of the lesser of their annual income or net worth
- During the 12-month period, the aggregate amount of securities sold to an individual investor through all crowdfunding offerings may not exceed $107,000.
Securities purchased in a crowdfunding transaction generally cannot be resold for one year. Holders of these securities would not count toward the threshold that requires a company to register its securities under Exchange Act Section 12(g) if the company is current in its annual reporting obligations, retains the services of a registered transfer agent and has less than $25 million in total assets as of the end of its most recently completed fiscal year. In addition, all transactions relying on the new rules would be required to take place through an SEC-registered intermediary, either a broker-dealer or a registered funding portal.
To invest in securities offered under Regulation CF on the InfraShares Portal, simply click on the “Invest” button available on the listing page of the issuer/company. You will be asked to confirm that you have reviewed these educational materials and understand the risks of investing as disclosed on the InfraShares Portal. Once you acknowledge your receipt and review of the materials, you will be redirected to our investment flow to complete your investment. Upon confirming the investment, your investment amount will be funded and held in a secured escrow account at a third-party agent.
Investors may cancel their investment until 48 hours prior to the deadline identified in the issuers offering materials. In the event the target offering amount is reached prior to the offering deadline, all investors that have confirmed their investment by completing the investment flow on the InfraShares Portal will be notified of a new offering deadline which will occur at least five business days after such notice, and investors will then have until 48 hours prior to the new offering deadline to cancel their investment.
Furthermore, in the case that the issuer has a material change in their offering (e.g., terms are updated, company operations have materially changed), all investors will receive a notice of that material change and are required to reconfirm their investment commitment within five business days of receipt of such notice. In the case that the investor does not confirm their investment within five business days, their investment will be automatically canceled and the funds committed will be returned to the investor.
SEC rules also require that Reg CF platforms provide channels for investors to discuss investment opportunities listed on the platform. Without the platform itself vetting projects, this public vetting process is critical. In this manner, the wisdom of the crowd guides investments on a Reg CF platform for non-accredited investors.
4.Calculating your Net Worth
Calculating your net worth FINRA: http://www.finra.org/investors/know-your-net-worth
Net worth is the total assets minus total outside liabilities of an individual or a company. Put another way, net worth is any asset owned minus any debt owed. Calculating your net worth can be a useful tool to gauge your financial health and your financial progress over time.
Step 1, you need to decide if you want to calculate net worth individually (you) or jointly (you and your spouse/partner).
Step 2, you need to list all your assets. The list below will help you classify everything in just a few seconds:
Cash and cash equivalents
Determine the amount of cash and cash equivalents that you have, including:
- Certificates of deposit
- Checking and savings accounts
- Money market accounts
- Physical cash
- Treasury bills
Determine the current market value of your investments, including:
- Life insurance cash value
- Mutual funds
- Retirement plans – IRA, 401(k), 403(b), etc.
- Other investments
Real and personal property
Determine the current market value of your real and personal property. Real property includes land and anything that is permanently attached to the land, such as a house. Personal property is everything else.
- Collectibles – antiques, art, coins, etc.
- Household furnishings
- Primary residence
- Rental properties
- Vacation or second home
Step 3, add cash/cash equivalents, investments, and real/personal property.
The sum represents your total assets.
Step 4, you need to list all your liabilities. Here is the list to help you:
Determine the amount of your secured liabilities, including:
- Automobile loan(s)
- Home equity loan
- Margin loans
- Rental real estate mortgage
- Second mortgage
- Vacation/second home mortgage
Determine the amount of your unsecured liabilities, including:
- Credit card debt
- Medical bills
- Personal loans
- Student loans
- Taxes due
- Other debt and outstanding bills
Step 5, add secured liabilities and unsecured liabilities.
The sum represents your total liabilities.
Step 6, subtract your total liabilities from your total assets. The difference is your net worth.
Let’s consider a couple that has the following assets: primary residence valued at $250,000, an investment portfolio with a market value of $100,000 and automobiles and other assets valued at $25,000. The couple’s liabilities are an outstanding mortgage balance of $100,000 and a car loan of $10,000. The assets ($250,000 + $100,000 + $25,000) minus the liabilities ($100,000 + $10,000) means that the couple’s net worth is $265,000.
5. How To Assess The Investment Opportunity
Assessing an investment is all about doing the proper due diligence to be able to make an informed investment decision. Each investor must conduct their own independent review of the offering documents and perform their own independent due diligence. Common factors that are reviewed by seasoned investors include:
- Management team backgrounds
- Differentiation and defensibility
- Business model
- Competitive landscape
- Historical financial performance
- Financial projections
- Unit economics
- Capitalization table
- Use of proceeds
Usually investors are looking for an investment that represents an opportunity in an established or up and coming area with identifiable growth over a certain period of time, committed and skillful team, and momentum.
If you choose to take the process to the next step, you need to know how to read the terms under which a potential investment will be made.
Important Terms of Equity Investment include:
- Maximum and Minimum Amount of investment the company is looking to raise
- Type of security offered
- Voting rights
- Anti-dilutive provisions and registration rights
- Liquidation preference
- Conversion rights
- Other offerings
On the InfraShares Portal, the deal terms that are presented on the offering pages are final terms and are not generally negotiated or changed once an offering has begun.
6. Risks Of Investing
Investing on the InfraShares Portal is very risky, highly speculative, and investments should not be made by anyone who cannot afford to lose their entire investment.
In making comparisons with other investments, a prospective Investor should consider that the success of any investment depends upon many factors, including opportunity, general economic conditions, and the experience of management. There is no representation that all or any possible factors necessary for success are present in the company seeking investment. Each prospective Investor must conduct his own investigation and analysis in order to make an investment decision.
It is not possible to identify or describe all of the risks that will confront the Investors, and Investors must be prepared to lose any and all of their investment. Investment must be considered in light of the risks, expenses and difficulties frequently encountered by start-up companies. Each investment opportunity will have unique risks associated therewith. A list of these risks will be found in the Form C filed in connection with the offering.
Investors need to consider whether investing in a security offered and sold in reliance on section 4, Reg CF “Regulation Crowdfunding” is appropriate for their individual circumstances.
7. Understanding Investment Returns
If you are looking to start investing, you need to understand what happens after the investment and how to manage your portfolio.
What Happens After You Invest?
Depending on the range of factors such as the performance of the company, the terms of your investment, the terms of any subsequent financing rounds, and the terms of any liquidity event, there are a few possible outcomes of your investment, which include:
- Total loss of capital invested
- Recovery of some principle but with some losses
- Return of capital
- Return of capital with a small profit
- Significant investment return above the capital invested
Return On Investment.
ROI – a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI measures the amount of return on an investment relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio.
Dilution of Equity.
Usually companies raise multiple rounds of investment capital to fund their growth. If you are an early investor, then your percentage ownership of the company may be diluted when new investors are granted newly issued shares in the company. Sometimes dilution may be a good thing for your investment when new investors are investing at a higher price per share than your original investment and the additional capital is being used to grow the business. As a general rule, if the valuation of the next round is higher than the round that you invested in, then having your percentage ownership “diluted” is not a bad thing.
If an offering has pro-rata rights or pre-emption rights, investors are granted the right to purchase additional stock in the company to maintain their percentage ownership in subsequent funding rounds. If the offering does not have anti-dilution protection or you do not exercise your pro-rata rights, your percentage ownership in a company may be diluted in future rounds. You should also pay attention to the drag along and tag along rights when assessing a company for investment. Generally, securities offered in Reg CF offerings do not have anti dilution protections.
Companies raise multiple rounds of investment but part of the value of an early-stage investment may include the right to invest into future rounds in the same company. You may have a legal right to invest in follow-on rounds through “pro-rata” rights to maintain your percentage ownership or first right of refusal on a certain amount of stock in future rounds.
An investor may experience an “exit” when the issuer is acquired or conducts a public offering. However, there is no guarantee that an issuer will ever be acquired or conduct a public offering and therefore no guarantee that an “exit” will ever take place. Investor’s investments could remain illiquid for an indefinite period of time.
In the event of a default by an issuer on any loans or debt, an Issuer may seek bankruptcy protection. In such an event, the issuer’s creditors would have priority over equity holders, and investors could lose all of their principal investment.
8. Managing Your Investment Portfolio
When investing in businesses, most investors follow their own investment strategy that is formed based on their knowledge, experience and expertise as well as personal values. Here are some tips on setting an investment strategy:
- Type of asset
- Market sector
- Business models
- Investment size
- Type of investment (debt/equity)
- Number of investments
The basic steps of the investing process:
Due diligence – you need to review the company information, management team and all the offering documents. Some things to pay attention to are valuation, amount of debt, market positioning, financial status of the company, revenue model, exit potential, etc.
You will have some legal documents such as a net income/net worth affidavit, verification of your identity and investor limits before making an investment.
To make an investment, you will normally sign an investment agreement that sets out the terms of the investment. In some transactions, the documents will be held in escrow until certain conditions are met.
Transfer the funds. Your funds will be transferred into an escrow account held by a third-party for safe-keeping until the funds are released to the company once certain conditions are met. Once the conditions of the escrow are met the documents and/or funds will be released to the company.
Investing On InfraShares
InfraShares.com is an online funding platform which facilitates equity investments under the Reg CF rules. The main steps in the investment process on the InfraShares Portal are:
1. Click “Invest”
Following your due diligence, click the “invest” button on the company’s offering page. This will start the investment process during which you will choose the amount of your investment and provide additional information. Your information will be pre-populated into the company’s offering documents, which you can sign electronically through the platform.
After signing the agreement, your funds will automatically be transferred and placed into an escrow account. The funds will remain in escrow until they are released to the company that you are investing in or returned back to you.
3. Once the fundraising round closes, you will receive confirmation of success and counter-signed legal agreements. In the case of an unsuccessful round or if you cancel your investment, the escrow agent will return the funds from the escrow back into your bank account.
Companies are required to reach a minimum funding target to have a successful fundraising campaign. That means that investments are not finalized until the company raises enough money to meet its funding target and completes all other closing conditions. Once the funding target has been met, the money is released to the company and investors will receive the applicable securities. If the minimum funding target is not met, subscription amounts are returned to investors by the escrow agent. InfraShares does not receive or take custody of investor funds at any point during the investment process.
Note that InfraShares is not a broker/dealer and is not providing investment advice. Investors are expected to perform their own due diligence of each opportunity.
Notwithstanding the foregoing, these investments are illiquid, risky and speculative and you may lose your entire investment. The foregoing verification process does not guarantee that any company will be successful or that you will receive a positive return on your investment. Each company review is tailored to the nature of the company, so the mentioned review process is not the exact process for every issuer. Completing the verification process does not guarantee that the company has no outstanding issues or that problems will not arise in the future. While the foregoing process is designed to identify material issues, there is no guarantee that there will not be errors, omissions, or oversights in the process.
For additional information about investing please consult the SEC website about investing basics: http://www.finra.org/investors/know-your-net-worth
Companies may seek to raise long term capital in the form of equity, which may be preferred equity. Investors seeking long term gains from capital appreciation resulting from the sale of an asset in the future may seek to invest through this strategy. These are typically longer term investments with uncertain exit timelines and returns. There is no assurance that investors will receive any dividend payments or long term capital gains. Investors may lose some or all of their principal investment. An investor’s percentage ownership in a company may be diluted if newly issued shares are offered to investors. Such dilution could result in investors having limited voting power.
Companies are limited to raising $1,070,000 in a rolling 12-month period under the Regulated Crowdfunding exemption.
In general, the InfraShares process includes the following steps:
Companies can apply to fundraise on InfraShares.com on the site. All applications are reviewed by the InfraShares Team and are verified on matching the criteria.
2. Compliance Verification
Exemption under the Regulated Crowdfunding requires:
- Offering will not be integrated with other offerings
- Company must use one online intermediary
- Company must be US entity
- Company cannot be Investment Company or company relying on an exemption from the ‘40 Act
- Must have a business plan
- Cannot be public reporting company
- If conducted an offering pursuant to Regulation CF in the past must be compliant with ongoing reporting requirements
- Cannot be a Bad Actor
The company need to have the right disclosures prepared for filing with the SEC. As part of Form C, issuers will need to make the following information is documented:
- Name, legal status, address, website
- Directors, officers, background, offices held
- Identity of 20% beneficial holders of voting securities
- Description of the business
- Financial condition
- Target offering amount, maximum amount, deadline
- Description of the securities including prices and how determined
- Use of proceeds
- Risk factors
- Ownership, capitalization, indebtedness
- Offering mechanics
- Related party transactions
The instructions to Form C indicate the information that an issuer must disclose, including:
- information about officers, directors, and owners of 20 percent or more of the issuer;
- a description of the issuer’s business and the use of proceeds from the offering;
- the price to the public of the securities or the method for determining the price,
- the target offering amount and the deadline to reach the target offering amount,
- whether the issuer will accept investments in excess of the target offering amount;
- certain related-party transactions; and
- a discussion of the issuer’s financial condition and financial statements.
The financial statements requirements are based on the amount offered and sold in reliance on Regulation Crowdfunding within the preceding 12-month period:
- For issuers offering $107,000 or less: Financial statements of the issuer and certain information from the issuer’s federal income tax returns, both certified by the principal executive officer. If, however, financial statements of the issuer are available that have either been reviewed or audited by a public accountant that is independent of the issuer, the issuer must provide those financial statements instead and will not need to include the information reported on the federal income tax returns or the certification of the principal executive officer.
- Issuers offering more than $107,000 but not more than $535,000: Financial statements reviewed by a public accountant that is independent of the issuer. If, however, financial statements of the issuer are available that have been audited by a public accountant that is independent of the issuer, the issuer must provide those financial statements instead and will not need to include the reviewed financial statements.
- Issuers offering more than $535,000:
- For first-time Regulation Crowdfunding issuers: Financial statements reviewed by a public accountant that is independent of the issuer, unless financial statements of the issuer are available that have been audited by an independent auditor.
- For issuers that have previously sold securities in reliance on Regulation Crowdfunding: Financial statements audited by a public accountant that is independent of the issuer.
3. Fundraising Campaign
Companies conducting offerings pursuant to Regulation Crowdfunding must file a Form C with the SEC. The information found in the Form C regarding the offering and the company must be available for at least 21 days prior to the sale of any securities offered in the offering. All committed funds provided by prospective investors will be held in an escrow account until the completion or termination of the offering unless such investor elects to cancel its subscription (which is permitted at any time until 48 hours prior to the deadline identified in the issuers offering materials). The company must reach the minimum target offering amount prior to the deadline in order to receive the offering proceeds. If the company does not meet the minimum funding amount by the deadline, all previously provided funds will be returned the investors. If the minimum funding amount is received, then the offering proceeds (less any fees due to the funding portal) will be transferred from the escrow account to the company. Issuers must provide progress reports on the offering in accordance with the disclosure requirements. The issuer can cancel an investment at any time and return funds to an investor.
10. Promoting Crowdfunding Campaign
Rule 204 of Regulation Crowdfunding would allow companies to publish a notice advertising the terms of an offering in reliance on Section 4(a)(6) so long as the notice includes no more than the following “tombstone” type information:
- a statement that the issuer is conducting an offering
- the name of the intermediary through which the offering is being conducted
- a link directing the investor to the intermediary’s platform
- the terms of the offering
- the amount of securities offered
- the nature of the securities
- the price of the securities
- the closing date of the offering period
- factual information about the legal identity and business location of the issuer, limited to
- the name of the issuer of the security
- the address
- phone number
- e-mail address of a representative
- a brief description of the business.
What companies can do:
- Promote the Fundme offering through social media (provided that the information is not in excess of the “tombstone” information set forth above);
- Send email campaigns to relevant email lists about your offering (provided that the information is not in excess of the “tombstone” information set forth above);
- Limit advertising materials to broad, non-sensitive, non-controversial statements which does not exceed the “tombstone” information set forth above;
What companies can NOT do:
- Make any untrue statements, misrepresentations or omissions (anti-fraud applies) regarding the offering
- Include sensitive, confidential or controversial information in public advertisements
- Include any information in excess of the “tombstone” information set forth above.
The are no limitations on the distribution of the notice so companies should consider reaching out to customers, personal and professional networks via emails, run events to allow potential investors to learn more about the business, product and team. Social media and online communities can be a great way to reach potential investors among your followers and spread the word about the campaign.
11. Investor Relations
It’s important to have an open communication channel to keep your investors informed. Maintaining long-term relationships with your investors is one of the most important parts of maximizing the added value that investors can provide to your company. The communications are best delivered in writing, either through mail or e-mail, or through the InfraShares Portal.
Many companies choose to provide investor updates on either a monthly or quarterly basis. These periodic updates usually include information about key metrics, traction, and any business issues that have arisen. This update can include links to new articles about the business, information about new partners, team members, opportunities, etc. You also want to notify investors about any current and upcoming issues that the company may face, particularly those that relate to fiduciary duty and organizational impact.
Finance Related Updates
You should always notify your existing investors of a new financing round. Your investor agreements may also legally require you to do so when future capital rounds take place. Some investors from previous rounds may also have the legal right to participate in new rounds of capital raising. Maintaining good records of each investor’s holdings and contact details is vital for companies that are raising multiple rounds of capital.
When you receive offers to acquire the business, the terms of your investor agreement may require you to notify the investors of any such offers.
The monthly report you send to investors shouldn’t be longer than a page or two and can include P&L information. A more substantial quarterly report should include detailed financial information.
Depending on the level of involvement of the investor, phone calls and in person meetings can be beneficial too. Consider scheduling semi-annual meetings or brainstorming sessions with investors, either in person or via conference call.
Why is Investor Relations important?
- It forces you to be accountable to yourself and to investors.
- It encourages ongoing evaluation of your company and business model on a monthly and/or quarterly basis.
- It helps investor identify potential areas of growth, partnerships, or new business angles.
- A record of strong investor communication and a documented history of the company’s performance can help attract new investors.
- Investor relations and reporting are important infrastructure components for larger companies and you should start developing this infrastructure early.
12. Company Disclosures and Reporting
Under the rules, certain companies would not be eligible to use the exemption, including non-U.S. companies, Exchange Act reporting companies, certain investment companies, companies that have failed to comply with the annual reporting requirements under Regulation Crowdfunding during the two years immediately preceding the filing of the offering statement, and companies that have no specific business plan or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies.
Reg CF of the JOBS Act requires companies that rely on the new rules to conduct a crowdfunding offering to file certain information with the Commission and provide this information to investors and the intermediary facilitating the offering, including among other things, to disclose via Form C:
- The business name, address and incorporation information;
- A description of the business and business plan;
- For offerings, that together with all other amounts under Reg CF within the preceding 12-month period, have in the aggregate, the following target offering amounts:
For issuers offering $107,000 or less: Financial statements of the issuer and certain information from the issuer’s federal income tax returns, both certified by the principal executive officer. If, however, financial statements of the issuer are available that have either been reviewed or audited by a public accountant that is independent of the issuer, the issuer must provide those financial statements instead and will not need to include the information reported on the federal income tax returns or the certification of the principal executive officer.
Issuers offering more than $107,000 but not more than $535,000: Financial statements reviewed by a public accountant that is independent of the issuer. If, however, financial statements of the issuer are available that have been audited by a public accountant that is independent of the issuer, the issuer must provide those financial statements instead and will not need to include the reviewed financial statements.
Issuers offering more than $535,000:
– For first-time Regulation Crowdfunding issuers: Financial statements reviewed by a public accountant that is independent of the issuer, unless financial statements of the issuer are available that have been audited by an independent auditor.
– For issuers that have previously sold securities in reliance on Regulation Crowdfunding: Financial statements audited by a public accountant that is independent of the issuer.
- The price to the public of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount;
- The narrative discussion of its financial condition covering, among other things, its historic results of operations and liquidity and capital resources;
- Information about officers and directors (including their history with the company, business experience for the past three years and other information) as well as owners of 20 percent or more of the company;
- The identity of the Crowdfunding Portal for the offering and compensation being paid to it;
- Number of current employees;
- Certain related-party transactions;
- and other information required by the Form C.
Issuers need to file updates to Form C (designated Form C-U) with information on the the progress toward reaching the Target Amount. Disclosure must be amended if a material change or update occurs (designated Form C-A).
Issuers would be required to file with the SEC and post to their website an annual report within 120 days of the end of each fiscal year (designated Form C-AR). This annual report would include information similar to the offering statement on Form C, including the financial statement and narrative disclosures meeting the highest standard applicable to any of the issuer’s past offerings pursuant to the Crowdfunding Exemption, but excluding offering-specific information.
In certain circumstances a company may terminate its ongoing reporting requirement if:
- The company becomes a fully-reporting registrant with the SEC;
- The company has filed at least one annual report, but has no more than 300 shareholders of record;
- The company has filed at least three annual reports, and has no more than $10 million in assets;
- The company or another party purchases or repurchases all the securities sold in reliance on Section 4(a)(6); or
- The company ceases to do business.
You would be required to file a notice of termination of its annual reporting obligation on Form C-TR. Investors may not be able to obtain current financial information about the issuer after annual reporting requirements have ceased.
13. Restrictions on Resale of Securities
Securities purchased in a crowdfunding transaction generally cannot be resold for a period of one year, unless the securities are transferred:
- to the issuer of the securities;
- to an “accredited investor”;
- as part of an offering registered with the Commission; or
- to a member of the family of the purchaser or the equivalent, to a trust controlled by the purchaser, to a trust created for the benefit of a member of the family of the purchaser or the equivalent, or in connection with the death or divorce of the purchaser or other similar circumstance.