Under the final rules, an issuer must file with the SEC and provide to the relevant intermediary and investors a Form C: Offering Statement, prior to the commencement of the offering of securities and amend the same to disclose any material changes, additions or updates. The final rules set forth information that needs to be included in Form C, at times in great detail, as follows:
- the name, legal status, physical address, and website of the issuer;
- certain information about directors and officers;
- information about beneficial owners;
- description of the business and the anticipated business plan;
- current number of employees;
- discussion of the material factors that make the investment speculative or risky;
- target offering amount and the deadline to reach the target, including a statement that if the sum of the investment commitments does not reach the target, no securities will be sold in the offering, investment commitment will be cancelled, and committed funds will be returned;
- whether the issuer will accept investments in excess of the target offering amount and, if so, the maximum amount that the issuer will accept and how oversubscriptions will be allocated, such as on a pro-rata, first come-first served, or other basis;
- a description of the purpose and intended use of the proceeds;
- a description of the process to complete the transaction or cancel an investment commitment;
- a statement that if an investor does not reconfirm his or her investment commitment after a material change is made to the offering, the investor’s commitment will be canceled and the committed funds will be returned;
- the price to the public or the method for determining the price;
- a description of the ownership and capital structure of the issuer (in some specified detail);
- certain information about the intermediary;
- a description of the intermediary’s financial interests in the transaction and in the issuer;
- a description of any indebtedness of the issuer;
- a description of exempt offerings conducted within the past three years;
- a description of certain transactions involving the issuer;
- a discussion of the issuer’s financial condition;
- financial disclosure, in the form of either: (1) federal income tax returns and financial statements certified by the principal executive officer (for issuers offering $100,000 or less); (2) financial statements reviewed by an independent public accountant (for issuers offering $100,000 – $500,000); or (3) audited financial statements (for issuers offering over 500K);
- any disqualifying event that occurred before the effective date of the rules;
- updates regarding the progress of the issuer in meeting the target amount;
- where on the issuer’s website investors will be able to find the issuer’s annual report and the date by which such report will be available on the website;
- whether the issuer or any of its predecessors previously failed to comply with the ongoing reporting requirements; and
- any other material information.
Additionally, an issuer relying on the crowdfunding exemption is subject to ongoing reporting requirements to file with the SEC and post on the issuer’s website an annual report with financial statements.
An issuer conducting a crowdfunding offering would be limited to directing investors to the broker or funding portal to obtain information about the offering. Under the final rules, an issuer may not, directly or indirectly, advertise the terms of a crowdfunding offering, except for the so-called tombstone ads that direct investors to the intermediary’s platform and include no more than a statement that the issuer is conducting a crowdfunding offering, the name of the intermediary and a link to the intermediary’s platform, the terms of the offering (i.e., the amount, nature, and price of the securities offered, as well as the closing date of the offering period), and factual information about the legal identity and business location of the issuer, limited to the issuer’s name, address, phone number, website, e-mail address, and a brief description of the business. An issuer may also communicate with potential investors about the terms of the offering through communication channels provided by the intermediary on the intermediary’s platform, as long as an issuer identifies itself as the issuer in all communications, as we will explain in greater detail later.
In our next post, we will discuss requirements for intermediaries.
This post was a part of a multi-part series on the SEC final rules on the crowdfunding exemption. You can find the other posts by searching our blogs at www.mcbrideattorneys.com.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
About the Author
R. Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C., which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. R. Shawn can be contacted at: 407-517-0064; [email protected], or www.mcbrideattorneys.com.
 Id. § 227.203(a).
 Id. § 227.201.
 Id. § 227.202. See also id. § 227.203(b).
 15 U.S.C. § 77d-1(b).
 17 C.F.R. § 227.204(b).
 Id. § 227.204(c).