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Updated: Nov 15, 2018

The most common exemptions from registration are the following:

What is Crowdfunding?

Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. Title III of the Jumpstart Our Business Startups (“JOBS”) Act of 2012 added Securities Act Section 4(a)(6) that provides an exemption from registration for certain crowdfunding transactions. In 2015, the Securities and Exchange Commission (the “SEC”) adopted Regulation Crowdfunding to implement the requirements of Title III. Regulation Crowdfunding became available on May 16, 2016.

For many years, companies who wanted to raise capital through the issuance of equity securities had to rely on exemptions from registration that made it very difficult to accept most investors due to the fact that most investors did not satisfy the SEC’s definition of an “accredited investor.” This meant that most investors in private companies were limited to high net-worth individuals, which greatly decreased the pool of investors most companies could seek for investment. Many companies who have a strong public following, either due to the company itself or the company’s products, have found that there are many who do not qualify as “accredited investors” who would like to invest in the company they are so passionate about. Many of those companies are not willing to conduct a registered offering and become subject to the reporting requirements of the SEC so there were few options for them to take on certain investors. Beginning in 2008, companies such as Indiegogo and Kickstarter launched and began offering rewards-based crowdfunding for companies looking to allow broader investor participation, but this did not give investors the opportunity to own equity in the company. Regulation Crowdfunding allows companies to reach a broader investor base and allows those investors to have equity ownership in the company.

What are the general requirements to satisfy Crowdfunding as an exemption from registration?

Under Regulation Crowdfunding:

  • All transactions under Regulation Crowdfunding must take place through an SEC-registered intermediary such as a broker-dealer or a FINRA-registered funding portal. A list of all FINRA-registered funding portals can be found here.

  • Companies are allowed to raise an aggregate of $1,070,000 in a 12-month period.

  • Investors are limited in the amount they can invest in crowdfundings in a 12-month period.

  • SEC disclosure is required in a Form C and subsequent filings.

What are the benefits and downsides of using Regulation Crowdfunding as an exemption from registration?

The benefits to using a Regulation Crowdfunding exemption are as follows:

  • Issuers may offer and sell to investors who are not “accredited investors;”

  • Issuers may conduct concurrent private offerings (such as pursuant to Rule 506(c) of Regulation D);

  • Issuers are subject to limited SEC reporting requirements; and

  • Broadens issuer shareholder base.

  • The downsides to using a Regulation Crowdfunding exemption are as follows:

  • Offers and sales must be made through an intermediary;

  • Issuers relying on Regulation Crowdfunding must file a Form C with the SEC which must include financial statements;

  • Investors may only invest subject to certain limitations;

  • Securities sold in Regulation Crowdfunding offerings generally cannot be resold for one year;

  • Bad-actor disqualifications apply to Regulation Crowdfunding offerings; and

  • Investors who are not high net-worth individuals are not accustomed to investing in high-risk small companies which means they may require more attention than high net-worth individuals.

What are the requirements for financial statements in a Regulation Crowdfunding offering?


What are the investor limitations in a Regulation Crowdfunding offering?


The decision whether to commence a Crowdfunding offering, including the preparation of required disclosures and securities compliance, can be complicated and difficult. Business Legal Advisors, LLC has over seven years of experience assisting companies with private offerings from preparing for the private offering to the completion of a successful offering.

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