The crowdfunding regulations of the Securities and Exchange Commission (SEC) became effective on May 16, 2016, and the agency has issued Compliance and Disclosure Interpretations (C&DIs) providing interpretive guidance on Regulation Crowdfunding. The C&DIs answer eight questions relating to the crowdfunding exemption and its requirements, including issuer disclosure requirements, advertising and promoter compensation in a crowdfunded offering.
The SEC guidance clarifies that, in conducting a crowdfunded offering, issuers may disseminate information prior to filing an offering statement with the SEC, provided that the information disclosed does not constitute an “offer of securities.” The SEC notes that the term “offer” has been broadly interpreted by the SEC, but it does not include factual business information that is not designed to condition the market for, or solicit interest in, the offering.
The C&DIs also indicate that entities seeking to invest in a crowdfunded offering are subject to the same investment limits as natural persons, with the applicable limits calculated based on the entity’s annual revenue and net assets rather than annual income and net worth.
The SEC provides practical guidance on permissible advertising in connection with a crowdfunded offering. The C&DIs advise issuers that any advertising in connection with a crowdfunded offering that is not made on the crowdfunding intermediary’s platform is limited to information about the terms of the offering information (amount of securities offered, nature of the securities, price and closing date). The SEC also clarifies that issuers may use videos to advertise the terms of the offering, as long as the content complies with applicable SEC regulations.
Finally, the C&DIs clarify that third parties compensated by the issuer that promote the issuer’s offering outside of the crowdfunding intermediary’s communication channels are also subject to the SEC’s regulations covering advertising in connection with crowdfunded offerings of securities.
The C&DIs are available on the SEC’s website.
The SEC simultaneously issued Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers. The guide is a “plain English” resource for issuers that are considering using Regulation Crowdfunding to raise capital, and covers the basic requirements of the SEC’s crowdfunding regulations. Topics addressed include issuer disclosure, limits on advertising and the use of promoters, restrictions on the resale of securities acquired in a crowdfunded offering and “bad actor” disqualifications from using Regulation Crowdfunding. The guide may be accessed here.