Crowdcheck Blog
Insights and information for online capital formation
Reg A and Reg CF have been around for a few years now and we are finding that some of our clients, especially those that have made multiple offerings, are getting to the point where they need to consider the implications of Section 12(g) of the Securities Exchange Act, which requires companies to become registered with the SEC when they meet certain asset and investor number thresholds.
Let’s start with the requirements of Section 12(g). It says that if, on the last day of its fiscal year, an issuer has assets of $10 million and a class of equity securities held of record by either 2,000 persons or 500 persons who are not accredited investors, it has to…
This entry is filed under Capital Raising, Crowdfunding, Crowdfunding Conditions, Disclosure, Regulation A, Section 4(a)(6)
A while back, one of our favorite start-up clients called me and asked me to speak to a potential investor. Paul Efron, a resident of Arizona, wanted to invest in the company's Regulation A offering. However, when he went onto the company’s website to invest, his subscription was rejected. The company was accepting subscriptions from investors in every state but Arizona and Nebraska.
Why Arizona and Nebraska, asked Paul?
The reason was that while federal law and most states’ laws say that a company selling its own securities is exempt from broker-dealer registration, that’s not the case in a handful of states. These states say that if a company isn’t using a…
This entry is filed under Capital Raising, Crowdfunding, Regulation, Regulation A, Securities Law, State Law
The amendments to Reg CF, Reg A, and other rules relating to capital formation utilizing exempt offerings have finally been published in the Federal Register, with an effective date of March 15, 2021. See, https://www.federalregister.gov/documents/2021/01/14/2020-24749/facilit….
This entry is filed under Crowdfunding, Regulation A, SEC, Securities Law
An increasing number of issuers have been using Regulation A to make continuous offerings of units, consisting of a combination of equity, often common stock, and warrants to purchase the same equity at a future date. Under the Securities Act, the units, the shares of stock, the warrants and the shares of stock issuable upon exercise of the warrants are separate securities whose offer and sale must be registered on a registration statement or covered by an exemption from registration such as Regulation A. That is why offering statements under Regulation A list each of these individually and why the SEC requires the validity opinion filed as an exhibit to the…
This entry is filed under Regulation A, SEC, Securities Law
For some reason, this issue has been coming up a lot lately. Our usual response to the question “Can non-US issuers make a Reg A or Reg CF offering?” is to point to the rules:
Rule 251(b)(1) says Reg A can only be used by “an entity organized under the laws of the United States or Canada, or any State, Province, Territory or possession thereof, or the District of Columbia, with its principal place of business in the United States or Canada.”
Reg CF Rule 100(b) says Reg CF may not be used by any issuer that “is not organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia.”
Slightly different…
This entry is filed under Capital Raising, Crowdfunding Conditions, Financial Statements, Regulation A, Section 4(a)(6), Securities Law, Types of Offerings
I have long (oh so long) been one of those urging the SEC to give some clarity with respect to the status of “finders.” See here for the latest piece.
Early-stage companies raising funds very often reach out to a guy who knows some guys who have money and have invested in startups in the past. If the first guy wants to be compensated by reference to the amount of money his contacts are able to invest, he may well have violated the broker registration requirements of the Securities Exchange Act of 1934. And it’s not only him who needs to be worried; if a startup raises funds through someone who should have been registered as a broker and wasn’t, their sales of…
This entry is filed under Capital Raising, Federal Law, Regulation, Regulation A, Rule 506(b), Rule 506(c), Securities Law
In its recent rulemaking, the SEC added new Rule 3a-9 under the Investment Company Act to allow for the use of “crowdfunding vehicles” for Reg CF investments. It is important to recognize that crowdfunding vehicles are quite limited, and not at all similar to the special purpose vehicles (“SPVs”) used to aggregate accredited investors in angel or venture capital funding rounds.
In that type of SPV, there is often a lead investor or manager who may act on behalf of the investors in the SPV. Those persons could be exempt reporting advisers under the Investment Advisers Act, or even fully registered investment advisers. In this way, SPVs create real separation…
This entry is filed under Crowdfunding Conditions, Regulation, SEC, Section 4(a)(6), Securities Law
While the costs of preparing an offering under Reg CF are significantly lower than other types of securities offerings, they can still be expensive in terms of professional and marketing fees prior to having any sense of whether the offering will be successful. The SEC heard the complaints from issuers on this point and have adopted a testing the waters provision that is substantially similar to that used in Reg A.
Under new Rule 206, issuers contemplating an offering under Reg CF may make written or oral offers to test the waters (“TTW”) prior to filing a Form C. Once the Form C is filed, the offering is live and no more TTW can be done. There is no…
This entry is filed under Crowdfunding Conditions, Regulation, SEC, Section 4(a)(6), Securities Law
Big news out of the SEC yesterday with the adoption of its amended rules covering various types of offerings exempt from registration under the Securities Act.[1] These rule changes impact the way in which issuers will be able to use Reg CF, Reg A, Reg D, and their ability to communicate about funding requirements without having to rely on an exemption at all until they are ready to raise funds. There is a lot to unpack in these rules, and we will put down our thoughts in a series of blog posts.
This first blog post covers a change that is a bit of a no change. Since the start of the COVID-19 pandemic, the SEC has recognized the increased funding needs of…
This entry is filed under Crowdfunding, Crowdfunding Conditions, Federal Law, Regulation, SEC, Securities Law
And by that I mean the geographic location of your place of business, if you have one. The pandemic has accelerated the existing trend of people working remotely and running their businesses from pretty much anywhere.
Crash any Zoom call these days. Josh appears to be calling in from a desert island but it’s a greenscreen behind him hiding the litterbox in his basement. Shireen is sitting on the deck of a house in what appears to be the Mountain West, although we thought she lived in SoHo. Emily is desperately trying to hide the fact that she is yawning because it’s late in Italy and she hasn’t told anyone that she moved there in March. And Amit . . . get that…
This entry is filed under Crowdfunding, Crowdfunding Conditions, Federal Law, Regulation A, Securities Law