Reg CF Rules: Highlights of All the Important Rules in Crowdfunding
The USA JOBS Act was passed in the year 2012 to regulate crowdfunding investment. As in this act, several rules and regulations were introduced.
As per the old rules, only accredited investors were allowed to participate in crowdfunding projects. However, with the new Reg CF rules, even non-accredited investors can invest their funds in crowdfunding projects.
The new regulations proved to be beneficial for small startups. They can easily raise money from all types of investors via an online platform.
Prior to this rule, investors were only allowed to invest money in securities via IPO. But the new regulations give complete freedom to the investors. However, they need to follow the rules when it comes to investment.
Security Exchange Commission regulates the securities market as well as the crowdfunding investment market.
Reg CF Rules:
These are the rules related to equity crowdfunding in the USA. The fundraisers, as well as the investors, have to follow these rules when it comes to crowdfunding. While there are various rules, here are the highlights of some of the important Reg CF rules.
- Issuer Limits:
This is the most important rule. As per Reg CF, the issuers or fundraises can raise only $1 million in a year via crowdfunding. This is the maximum amount any business owner or startup can raise via crowdfunding. If you want to raise more money, you need to use a different approach. While the amount is small, it is still good for small startups.
- Form Filling and Documentation:
Issuers also need to provide disclosure about the funding by filling Form C. They need to submit financial statements about their company which is audited. This rule is mostly laid down to avoid any risks associated with crowdfunding projects.
This is another important rule. Fundraisers can raise money only via intermediaries. The middleman needs to be registered with SEC. Most of the time, the intermediary is a funding portal or broker-dealer. The issuer needs to create an offer on the portal to attract investors. The portal works as a middleman in raising money. While broker-dealer mostly charge high fees, issuers mostly go with a funding portal to raise money.
- Investor Limits:
Apart from fundraising limits, there are investment limits as well. If you want to invest money in a crowdfunding project, you need to follow this rule. If your net worth or annual income is less than $100,000, then you can invest either 5% (annual income/ net worth) of or $2000. But if your annual income or net worth is more than $100,000, then you can invest 10% of any amount which is less. However, the maximum investment cap is $100,000.
- Type of Investors:
Any type of investor can invest their money in crowdfunding projects. You can easily invest your money in their private business. This rule gives equal opportunity to accredited as well as non-accredited investors.
These are some important rules you need to follow when it comes to raising money via crowdfunding.