What is Reg C? - Reg C (reg c)| Form C | SEC
What is Regulation C
Crowdfunding is a popular method of raising capital by soliciting investment from a group of individuals, usually via the internet (e.g. StartEngine, Wefunder, etc.). If a company would like to sell securities via crowdfunding, they must adhere to the federal securities laws. Under these laws, any sale or even offer of a security must either meet an exemption or be registered with the SEC.
Regulation C offers an exemption from the registration requirement, hence allowing companies to sell up and offer up to $1.07M of their securities without having to register the offering with the SEC.
Regulation Crowdfunding or Reg C is relatively new. It allows both investors and issuers to leverage the internet connectivity to offer investment opportunities to businesses that otherwise cannot deal with the financial and regulatory burden of selling securities, and to investors that wouldn’t have gotten the opportunity previously or funds to become an investor in a business on their own.
Form C is used for the offering statement, in addition to all the related amendments (Form A/C) or progress reports to that offering statement. Anything that is disclosed in the form allow investors to make an informed decision before putting their money into the company. By submitting Form C, you can claim that you are planning to raise capital via crowdfunding campaign and are exempt from registering the securities of your business with the SEC.
Form C filers don’t have the same requirements for submitting financials, and if they are filing it the first time, they don’t need to have their financial reports audited by a third-party public accountant. The level of independent review needed varies depending on the first-time filer status as well as the amount of the offering.
Investor and Issuer Restrictions
When starting a regulation crowdfunding campaign, you should keep the following restrictions in mind: Issuers cannot raise capital over $1.07M in any one-year period (including amounts sold by related entries). If you need to raise more capital than this, then you should look into Form D. All crowdfunding must be conducted via a single online platform. The platform must be an intermediary funding portal or broker/dealer and must be registered with FINRA and SEC. When announcing the offering, issuers must release a notice that contains basic facts about the offering as well as the company. No other public advertising is allowed; however, issuers can communicate with prospective investors through the platform and must identify themselves as the issuer before doing that.
There are also restrictions for investors who want to buy into companies that utilize Reg C funding method. These limitations basically control how much anyone can invest. They are based on net worth and income.
In a nutshell, Reg C crowdfunding helps real estate development companies and startups to raise capital from both accredited and non-accredited investors. The diversity of industries allows platforms that facilitate crowdfunding to find the right niche where the Reg C offerings become a functional fundraising tool that brings profits.
A brief guide to Reg C
Crowdfunding has been a great option for entrepreneurs with exceptional business plans. It’s not an uncommon scenario in today’s world to raise a business based on crowdfunding. You may have an out-of-the-box business idea that may bring some revolutionary transformations in the industry you’re targeting. However, experimental business ideas aren’t usually entertained by investors and lenders. In such a scenario, a brilliant entrepreneur has no other way except crowdfunding to turn his idea into reality. Though establishing a start-up with crowdfunding is time-consuming, it can be worthwhile to some extent too. However, if you’re determined to start off your business with online crowdfunding, you are bound to come across Reg C in your way to make your plans successful. Now, the foundation of Reg C may seem vague and hard to understand to most entrepreneurs. Well, this article presents all the significant facts related to Reg C to help you understand the scheme.
The introduction to Reg C
Reg C is the abbreviated version of regulation crowdfunding that has been turning out to be a usual practice nowadays. Looking closely at any particular industry, you can find some entrepreneurs who made their way to success through regulation crowdfunding. In simple words, regulation crowdfunding simplifies the hazardous process of crowdfunding for investors and issuers. The process of regulation crowdfunding relies on the internet. An entrepreneur is supposed to file a Reg C form online and start collecting funds through a specific online platform. The restrictions of Reg C don’t allow an issuer to collect funds from different online sources. Regulation crowdfunding can be considered an official offering statement of crowdfunding requests. Ideally, regulation crowdfunding statements are backed by relevant progress reports to clarify the performance of the initiative. Therefore, crowdfunding becomes more convenient and trustworthy for both issuers and investors. Why? The following segments will disclose that.
Reg C for an issuer
Firstly, there’s no assurance that your business idea will click. New start-ups often go through subsequent turbulences and offering investment security is not possible for such a start-up venture. In conventional crowdfunding, a start-up venture is supposed to register the business securities with the SEC to acquire funds. Contradictorily, Reg C filing helps an entrepreneur to get rid of the burden of selling securities. As you file Reg C, you inform your targeted investors that you’re registering your business securities with the SEC.
Reg C for an investor
From an investor’s point of view, regulation crowdfunding is a trustworthy option as well. The basic foundation of regulation crowdfunding demands a business venture to attach evaluation reports of progress reports of their business transactions with their Reg C statement. Therefore, an investor can scrutinize the supportive documents to analyze the growth possibility of the business. No investor desires to invest in unworthy ventures.
Most importantly, if you’re planning to issue the first Reg C form on behalf of your business, you don’t even have to audit your financial reports with a third-party chartered account or agency. Naturally, crowdfunding becomes way more straightforward and effortless for you with Reg C.
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