SEC Small Entity Compliance Guide and Compliance and Disclosure Interpretations for Issuers.
On May 13, 2016, the Securities and Exchange Commission (“SEC”) released two guidance documents on crowdfunding for issuers: “Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers” and “Regulation Crowdfunding: Compliance and Disclosure Interpretations (C&DIs).”  For details of the final rules, including requirements for issuers, please see our previous blog series “Is It Time To Do Crowdfunding To Raise Money?: SEC Releases Federal Crowdfunding Final Rules.” The compliance guide and C&DIs explain the final rules in plain English, some of which we highlight below.
Disclosure; Form C. Any issuer conducting a crowdfunding offering must electronically file its offering statement on Form C through the SEC’s EDGAR system and with the intermediary facilitating the offering. For instructions on how to use the EDGAR system, please read our previous blog post on the SEC’s Small Business Compliance Guide on Registration of Funding Portals, which is basically the same process until you get to the form part. For reference purposes, a PDF copy of Form C and the instructions is available here.
An issuer must also file Form C for various other purposes, including the following:
- Amendments to Offering Statement (Form C/A): An amendment is required for changes, additions or updates that are material. In those instances, the issuer must reconfirm outstanding investment commitments within 5 business days or the investor’s commitment will be considered canceled;
- Progress Updates (Form C-U): An issuer must provide an update on its progress toward the target offering amount within 5 business days after reaching 50% and 100% of its target offering amount.
- Annual Reports (Form C-AR): This is required within 120 days after the end of the issuer’s fiscal year, also to be posted on the issuer’s website, until an event that releases the issuer from the annual reporting requirement occurs, such as purchase or repurchase of all of the crowdfunded securities, liquidation, or dissolution, to name just a few.
- Termination of Reporting (Form C-TR): This is required when an issuer terminates its annual reporting obligations.
Advertising, Terms of the Offering, and Offer. Under the final rules, an issuer may not advertise the terms of a crowdfunding offering except in a notice that directs investors to the intermediary’s platform and includes only the following information: (a) a statement that the issuer is conducting a crowdfunding offering, the name of the intermediary, and a link to the intermediary’s platform; (b) the terms of the offering, which include the amount, nature, and price of the securities offered and the closing date of the offering period; and (c): factual information about the issuer, including the 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 the issuer identifies itself as the issuer in all communications.
The C&DIs add that an issuer may advertise the terms of the offering through a video, as long as it complies with the above requirements. The C&DIs also clarify that a third party publication, such as a media article that advertises the terms of the offering, constitutes a notice subject to the same limitations, if the issuer has been directly or indirectly involved in the preparation of the publication. Similarly, the C&DIs say, if an issuer is compensating a third party to promote the issuer’s offering outside the intermediary’s communication channels, those third-party communications need to comply with the above notice requirements. If the media article did not advertise the terms of the offering, however, it would not be a notice subject to the above requirements, though it could still be considered an “offer” under the securities law. The SEC interprets the term “offer” broadly to include “publication of information and publicity efforts, made in advance of a proposed financing which have the effect of conditioning the public mind or arousing public interest in the issuer or in its securities,” which is not permitted in crowdfunding transactions prior to the issuer filing a Form C with the SEC and providing it to the relevant intermediary.
This post was the fifth part of our multi-part series on crowdfunding under the JOBS Act. You can find the other posts by searching our blogs at www.mcbrideattorneys.com. In our next and last post, we will discuss recent legislative efforts to amend the crowdfunding law.
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.
Shawn McBride is the Managing Member of The R. Shawn McBride Law Firm, PLLC, which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: 407-517-0064; [email protected], or www.mcbrideattorneys.com.
 SEC, Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers (May 13, 2016), https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm#4; SEC, Regulation Crowdfunding: Compliance and Disclosure Interpretations (May 13, 2016), https://www.sec.gov/divisions/corpfin/guidance/reg-crowdfunding-interps.htm. Unless otherwise specified, all references to the compliance guide and C&DIs are to these citations.