Crowdcheck Blog
Insights and information for online capital formation
This is a question we often get from companies as they are trying to organize their cap table, or provide information to a transfer agent. Many companies seem to be of the belief that shares are not actually issued until a certificate is prepared, or that the shares are recorded on the company’s internal ledger, or the transfer agent’s ledger. However, this is not correct.
Taking a step back, investors commit to acquire a company’s shares by signing a subscription agreement (which may also be called a purchase agreement). The subscription agreement has certain representations from the company and the investor, and may have some other clauses like for dispute…
This entry is filed under Capital Raising, Educational, Securities Law
We are often asked by companies, “why can’t I do [fill in the blank]? I see this other company doing it.” Our response has always been that just because those other companies have not yet been subject to enforcement, doesn’t mean that there will not be an issue later on. The time and effort to build a case, and often reaching a settlement, means that public knowledge of enforcement lags.
The SEC has recently made this clear in regards to non-compliant offers and sales under Reg A. On May 16, 2023, the SEC announced 10 settlements with issuers that violated the rules of Reg A. See, https://www.sec.gov/news/press-release/2023-94. The common theme of the…
This entry is filed under Regulation, Regulation A, SEC, Securities Law
A regulation crowdfund, it seems,
Is a way for small firms to raise some green,
Without need for a broker, or lots of red tape,
Through the power of the crowd, and a site to escape.
With a cap on the amount that can be raised,
And a limit on who can invest and be praised,
It's a way for the little guy to get funded,
And for investors to support something they've wanted.
So if you've got a dream, and you need some cash,
Consider a regulation crowdfund, don't be rash,
It might be the boost that your business needs,
To succeed in the market, and fulfill your dreams.
This entry is filed under Capital Raising, Crowdfunding, Section 4(a)(6)
When it comes to Regulation A and Regulation CF, the SEC puts a lot of focus on the financial statements being provided to investors. And that makes sense. Financial statements can tell a lot about a company, and the financial position of that company could be one of the primary reasons for investing (even if that means there is no financial history and investors are taking a risk).
Recently, we have seen a lot of would-be issuers get tripped up by the requirement to provide financial statements related to real estate they intend to acquire. Sometimes, they also received bad advice that they can form a new company and only provide audited statements for that…
This entry is filed under Crowdfunding, Financial Statements, Regulation A, SEC
The SEC today decided to make a statement against companies considering using Regulation CF for fraudulent offerings, and funding portals that facilitate the fraud. A copy of the complaint can be found here, https://www.sec.gov/news/press-release/2021-182.
On September 20, 2021, the SEC filed in federal court a complaint against sponsors of a marijuana real estate venture, and the TruCrowd funding portal, and its owner. The complaint alleges the sponsors of the issuer hid the existence of a person who acted in the role of an officer throughout the offering process because that person had a criminal record. The complaint also alleges that funds were used in a…
This entry is filed under Bad Actor, Crowdfunding Conditions, Federal Law, Fraud, SEC
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
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
After undertaking an offering under Regulation Crowdfunding or Tier 2 of Regulation A, issuers are required to file ongoing reports with the SEC. Regulation Crowdfunding requires an annual report, while Tier 2 of Regulation A requires an annual report and semi-annual report. Regulation Crowdfunding also requires companies to make the annual report available on its own website.
The annual report for Regulation Crowdfunding requires financial statements prepared in accordance with GAAP and certified by management. For Tier 2 of Regulation A, the annual report requires audited financial statements, and the semi-annual report requires management certified financial…
This entry is filed under Crowdfunding, Financial Statements, Regulation A