Regulation Crowdfunding (Reg CF)
SEC rules under Title III of the JOBS Act of 2012 permitting crowdfunding offerings to non-accredited investors through registered funding portals or broker-dealers. Annual offering limit $5 million (raised from $1.07M in 2021). Per-investor limits based on income/net worth. Requires Form C disclosure, financial statements, and ongoing reporting. Most-used framework for online retail-investor capital raising. Codified at 17 C.F.R. § 227.100 et seq.
Regulation Crowdfunding (Reg CF) is the SEC framework permitting crowdfunding offerings to non-accredited investors through registered funding portals or broker-dealers. Authorized by Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012 and effective in 2016, Reg CF was significantly expanded in 2021 with the offering limit raised from $1.07 million to $5 million annually. Reg CF is the most-used framework for online retail-investor capital raising in the U.S., supporting platforms like Republic, StartEngine, Wefunder, and others.
Annual offering limit, $5 million
The Reg CF annual offering limit is $5 million in any 12-month period (raised from $1.07 million in March 2021). The increase substantially expanded Reg CF's utility for growing companies, pre-2021, Reg CF was practical only for very early-stage offerings; post-2021 expansion, Reg CF supports more substantial Series A-equivalent offerings.
Per-investor limits
Reg CF imposes per-investor limits based on income/net worth: (1) both income and net worth less than $124,000, the greater of $2,500 or 5% of the lesser of annual income or net worth; (2) either income or net worth ≥$124,000, 10% of the lesser of annual income or net worth, up to $124,000 maximum; (3) accredited investors, no per-investor limit (post-2021 expansion). The thresholds are adjusted periodically for inflation. Per-investor limits are aggregated across all Reg CF offerings in 12-month period.
Funding portal requirement
Reg CF offerings must be conducted through SEC-registered funding portals or broker-dealers. Major U.S. platforms: (1) Wefunder; (2) StartEngine; (3) Republic; (4) Honeycomb Credit; (5) Mainvest; and others. Funding portals are subject to SEC and FINRA regulation including: registration, AML, customer protection, communications restrictions, due diligence requirements. Issuers contract with platforms for offering execution; platforms charge fees (typically 5-10% of capital raised) plus equity in some cases.
Form C disclosure
Reg CF issuers must file Form C with the SEC and provide it to investors via the funding portal. Form C disclosures include: (1) company description, business, products, market; (2) management, directors, officers, 20%+ owners; (3) financial information, based on offering size: (a) up to $124K, internal financial statements; (b) $124K-$1.235M, independently reviewed financial statements; (c) $1.235M-$5M, independently audited financial statements; (4) use of proceeds; (5) offering terms, security type, pricing, investor rights; (6) risk factors; (7) related-party transactions; (8) indebtedness. The financial statement requirements escalate with offering size, audited statements above $1.235M is significant compliance burden.
Ongoing reporting
Reg CF issuers must file ongoing reports with the SEC: (1) Form C-AR (annual report), filed annually until first of: (a) issuer becomes Exchange Act reporting company; (b) issuer has $10M+ assets and 300+ holders for two consecutive years; (c) issuer or third party purchases all Reg CF securities; (d) liquidation. Annual reporting includes audited financial statements (for offerings $1.235M+) and updated business information. Ongoing reporting burden is substantial for small companies.
Resale restrictions
Reg CF securities are subject to one-year resale restriction. After 12 months, securities can be resold subject to: (1) Rule 144 requirements for sales to public; (2) private resales to accredited investors. Many funding portals offer secondary trading platforms supporting Reg CF securities; secondary liquidity is improving but remains limited compared to public-market alternatives.
Testing the waters (2021 expansion)
The 2021 expansion permits "testing the waters" before formal Reg CF offering, issuers can solicit investor interest without committing to specific offering terms. This allows: (1) gauging investor interest before incurring offering costs; (2) building investor list; (3) refining offering terms based on feedback. Communications must include specific disclosures and cannot solicit money before formal offering launch. Testing the waters provisions parallel Rule 506(c) and Reg A+ analogous provisions.
Bad actor disqualification
Reg CF includes Rule 503 bad actor disqualification parallel to Rule 506(d): covered persons (issuer, directors, officers, 20%+ owners, certain promoters) cannot have specified disqualifying events. Disqualification voids ability to use Reg CF, comprehensive bad actor checks are required before Reg CF offering. Funding portals typically conduct bad actor verification as part of issuer onboarding.
For Texas issuers considering Reg CF, the framework is best suited for consumer-facing brands with passionate retail investor bases. Best practice: (1) evaluate Reg CF vs. Reg D, Reg CF works for retail investor base; Reg D for institutional/accredited; (2) for offerings above $1.235M, prepare for audited financial statements requirement, substantial cost; (3) coordinate with funding portal, fees, equity, ongoing relationship; (4) consider ongoing reporting burden, annual financials and disclosures; (5) coordinate Reg CF with anticipated subsequent rounds, Reg CF investors create cap table complexity for future Reg D rounds; (6) leverage marketing and community-building benefits of Reg CF (transparency, community engagement). For investors: (1) understand per-investor limits; (2) conduct independent due diligence, funding portals do limited verification; (3) recognize illiquidity (12-month minimum hold); (4) coordinate Reg CF investments across multiple offerings to manage limits. Common pitfall: issuers underestimating ongoing reporting burden, annual audited financial statements are expensive and burdensome for small companies.