Equity Crowdfunding Under Title III: How Reg CF Works

Equity crowdfunding under Title III of the JOBS Act, implemented by the SEC as Regulation Crowdfunding (often shortened to Reg CF), lets eligible companies sell securities to the general public through an online platform run by an SEC-registered intermediary. The offering is made under Section 4(a)(6) of the Securities Act, which exempts qualifying crowdfunding transactions from registration. Companies file a Form C with the SEC, raise a capped amount over a 12-month period and make ongoing disclosures, while individual non-accredited investors face limits on how much they can invest across all crowdfunding offerings.

This guide explains the structure of a Reg CF offering, who can use it, the limits, the disclosure and financial statement requirements, the role of intermediaries and the restrictions on advertising and resale. It is educational and not legal advice. The rule text in 17 CFR Part 227 and the SEC’s Regulation Crowdfunding page are the primary sources.

In brief

A company may raise a maximum of $5 million through Reg CF offerings in a 12-month period under Rule 100(a)(1), according to the rule and the SEC’s page.
All transactions must run through an SEC-registered broker-dealer or funding portal.
Non-accredited investors face annual limits across all crowdfunding offerings; the rule’s thresholds are described below.
Securities generally cannot be resold for one year, with listed exceptions.
Reg CF is different from rewards-based crowdfunding, which does not involve securities.

What Reg CF is, and what it is not

Crowdfunding commonly refers to raising small amounts from many people online. Two models differ legally. In rewards or donation crowdfunding, backers receive a product, perk or nothing, and no security is sold. In equity crowdfunding, backers receive securities such as stock, debt or a revenue-share instrument, so securities law applies. Reg CF covers the second model. It differs from Regulation A, which is a public offering exemption with SEC qualification and higher limits, and from Regulation D, which is built on private placements. Our guides on Regulation A and on Reg A versus Reg D cover those.

Who can use Reg CF

Rule 100(b) lists issuers that cannot rely on the exemption. In summary, the exemption does not apply to an issuer that:

Is not organized under the laws of a State or territory of the United States or the District of Columbia.
Is subject to Exchange Act reporting requirements under Section 13 or 15(d).
Is an investment company or is excluded from that definition by Section 3(b) or 3(c) of the Investment Company Act.
Is disqualified under the bad actor provisions of Regulation Crowdfunding (Rule 503(a)).
Sold securities under Section 4(a)(6) and failed to file the required annual reports during the preceding two years.
Has no specific business plan, or whose plan is to engage in a merger or acquisition with an unidentified company.

Rule 100(c) treats entities controlled by or under common control with the issuer, and predecessors, as part of the issuer when calculating amounts.

The offering limit

Rule 100(a)(1) provides that the aggregate amount of securities sold to all investors by the issuer under Section 4(a)(6) during the 12-month period preceding the date of the offer or sale, including the securities offered in that transaction, may not exceed $5,000,000. The SEC’s Regulation Crowdfunding page states the same maximum.

Investor limits

Rule 100(a)(2) limits what a non-accredited investor may buy across all issuers under Reg CF in a 12-month period:

If either the investor’s annual income or net worth is less than $124,000, the limit is the greater of $2,500 or 5 percent of the greater of annual income or net worth.
If both annual income and net worth are $124,000 or more, the limit is 10 percent of the greater of annual income or net worth, capped at an amount sold of $124,000.

Income and net worth are calculated as for accredited investor status under Rule 501, and spouses may calculate them jointly, with the combined investment limited to the individual limit for that level. The rule allows issuers to rely on the efforts of the intermediary to apply the limit, provided the issuer does not know the investor has exceeded it. Accredited investors are not subject to these limits. Because these dollar thresholds are adjusted by the SEC periodically, confirm the current text before relying on them.

The role of intermediaries

Every Reg CF transaction must be conducted exclusively through the platform of one intermediary, and an issuer cannot use more than one intermediary for an offering or concurrent offerings (Rule 100(a)(3) and its instruction). Under Rule 300(a), the intermediary must be registered with the SEC as a broker-dealer or as a funding portal and be a member of a national securities association registered under Section 15A of the Exchange Act. Rule 300(b) restricts financial interests of the intermediary and its directors and officers in issuers on the platform, subject to stated exceptions.

Intermediaries operate the online platform and carry duties under the crowdfunding rules, which are in Subpart C of Part 227. Fees are set by contract and vary, so issuers should compare terms and confirm them with the intermediary.

Form C and required disclosures

Before the offering begins, the issuer files an offering statement on Form C with the SEC and provides it to investors and the intermediary (Rule 203(a)(1)). Rule 201 lists the content. It includes:

The issuer’s name, legal status, address and website.
Directors and officers, with their business experience in the past three years, and holders of 20 percent or more of voting equity.
A description of the business and business plan, and the number of employees.
The material factors that make an investment speculative or risky.
The target offering amount, the deadline, and a statement that if commitments do not equal or exceed the target by the deadline, no securities will be sold and funds will be returned.
Whether the issuer will accept investments above the target, the maximum and how oversubscriptions will be allocated.
The purpose and intended use of proceeds.
The process to complete or cancel an investment, including that investors may cancel a commitment until 48 hours before the deadline.
The price of the securities or the method for determining it, the ownership and capital structure, and the terms of the securities.
A discussion of financial condition and the financial statements.

Financial statement requirements

Rule 201(t) scales the financial statements to the offering size, aggregated with amounts sold under Section 4(a)(6) in the preceding 12 months:

$124,000 or less: federal income tax return information certified by the principal executive officer, and financial statements certified by that officer, unless reviewed or audited statements are available, in which case those must be provided.
More than $124,000 but not more than $618,000: statements reviewed by an independent public accountant, or audited statements if available.
More than $618,000: audited statements, except that for issuers that have not previously sold securities under Section 4(a)(6), offerings of more than $618,000 but not more than $1,235,000 may use reviewed statements. Audited statements must be provided if available.

Statements must follow U.S. GAAP, and unaudited ones must be labeled as such. The SEC periodically adjusts these dollar thresholds for inflation, so read the current rule.

Progress updates, amendments and ongoing reports

Amendments. Rule 203(a)(2) requires a Form C/A to disclose material changes. Where there are material changes, investors must reconfirm within five business days or their commitment is cancelled.
Progress updates. Rule 203(a)(3) requires a Form C-U no later than five business days after the issuer reaches 50 percent and 100 percent of the target amount, unless the intermediary publishes frequent progress updates on its platform; a final Form C-U reporting the total amount sold is due within five business days after the offering deadline.
Annual report. Rule 202 requires an issuer that sold securities under Reg CF to file an annual report on Form C and post it on its website no later than 120 days after the end of the fiscal year covered, with financial statements and specified disclosures.

Advertising limits

Rule 204 limits how an issuer may advertise the terms of a Reg CF offering. A notice may advertise the terms only if it directs investors to the intermediary’s platform and includes no more than a statement that the issuer is conducting a Section 4(a)(6) offering, the intermediary’s name and link, the terms of the offering and factual information about the issuer’s identity and location, including a brief description of the business. Counsel typically reviews marketing materials against Rule 204 and the related rules before they go out.

Resale restrictions

Rule 501 bars purchasers from transferring Reg CF securities for one year from issuance unless the transfer is to the issuer, to an accredited investor, as part of a registered offering, or to a family member or equivalent, a trust controlled by the purchaser or for the benefit of family, or in connection with death, divorce or a similar circumstance. This makes the securities illiquid for at least a year, and many remain illiquid afterwards because no public market exists.

State law and antifraud

The SEC’s Regulation Crowdfunding page includes frequently asked questions on whether state law requirements and the antifraud provisions apply. The antifraud provisions apply to Reg CF offerings, and the issuer remains responsible for the accuracy of what it tells investors on the platform, in Form C and elsewhere.

A worked example, with made-up numbers

A fictional bakery plans to raise $400,000 through Reg CF. Because the total is above $124,000 and not above $618,000, it needs financial statements reviewed by an independent accountant, or audited ones if it has them. It chooses a registered funding portal, files a Form C, sets a target of $250,000, a maximum of $400,000 and a deadline, and describes the use of proceeds and the securities.

An investor with $60,000 in annual income and $90,000 in net worth falls under the first rule because at least one measure is below $124,000. The limit is the greater of $2,500 or 5 percent of the greater of the two figures, which is 5 percent of $90,000, or $4,500. If the investor has already invested $2,000 in other Reg CF offerings in the past 12 months, the remaining room would be $2,500 (in this simplified illustration).

When the bakery reaches 50 percent of the target, it files a Form C-U within five business days unless the portal publishes frequent updates. After closing, it files a final Form C-U and, each year, an annual report within 120 days after fiscal year-end.

Common misconceptions

“Reg CF is open to any business anywhere.” The issuer must be organized in a U.S. state or territory or D.C., among other conditions.
“There is no SEC filing.” Form C, amendments, progress updates and annual reports are filed with the SEC.
“All investors have the same cap.” Limits apply to non-accredited investors and depend on income and net worth.
“You can promote on social media freely.” Rule 204 narrowly limits advertising of the terms of the offering.
“Securities can be sold again right away.” There is a one-year restriction with exceptions.
“Crowdfunding investments are safe because the SEC is involved.” The SEC does not guarantee any offering. Early-stage investments are risky and may be illiquid or lost entirely.

FAQ

How much can a company raise through Reg CF?

Up to $5 million in a 12-month period under Rule 100(a)(1), counting all securities sold under Section 4(a)(6) in that period.

Do I have to be accredited to invest?

No. Non-accredited individuals may invest, subject to the annual limits in Rule 100(a)(2). Accredited investors are not subject to those limits.

What is a funding portal?

A funding portal is an intermediary registered with the SEC under the crowdfunding rules that operates an online platform for Reg CF offerings. A registered broker-dealer can also serve as the intermediary.

Can I cancel an investment?

Investors may cancel a commitment until 48 hours before the offering deadline stated in the issuer’s materials, according to Rule 201(j). Material changes require reconfirmation.

What happens if the company misses its target?

Rule 201(g) requires the issuer to state that if commitments do not equal or exceed the target by the deadline, no securities are sold, commitments are cancelled and committed funds are returned.

Where do I find a Reg CF offering filing?

Form C filings are public on the SEC’s EDGAR system, and the intermediary’s platform hosts the offering materials.