By: Douglas L. Rabuzzi, Esq.

On May 16, 2016, the U.S. Securities and Exchange Commission (“SEC”) issued Regulation Crowdfunding (“Reg CF”), the final rules on allowing non-public companies to offer securities to ordinary, non-accredited investors. If compliant with Reg CF, such offerings will not have to include all the complicated bells and whistles of a full-blown, SEC-registered offering.

Key issues regarding issuers:

  • Issuer may offer/sell up to $1,000,000 worth of securities in any rolling 12-month period
  • Issuer must disclose certain information on Form C regarding, among other things, the:
    • Amount and terms of the securities being offered
      • This must include a deadline by which the target offering amount is expected to be achieved
      • If the deadline arrives without the target having been met, the offering is to be cancelled and any deposit funds received from potential investors must be returned
    • Capital structure of the issuer, including the terms of currently outstanding securities
    • Identity and location of the issuer
    • Identity of issuer’s officers, directors and 20% owners
    • Issuer’s business description, including risk factors
    • Planned use of proceeds of the offering
    • Issuer’s financial condition (the specific level of required detail will depend on the size of the offering, but it may include audited financial statements and/or tax returns)
      • Financial disclosures must follow GAAP
  • Issuer must update Form C when
    • There have been material changes to the information previously provided
    • The offering reaches 50% and 100% of the targeting offering amount
  • Following a successful offering, issuer must begin filing annual reports (including financial statements) with the SEC and post the same on its website
  • Issuer will not be eligible for the exemption if it:
    • Is not a U.S. entity
    • Is already subject to public company reporting requirements
    • Is an investment company
    • Is disqualified under “bad actor” rules
    • Is not in compliance with Reg CF regarding prior exempt offerings
    • Has no specific business plan (or it plans to merge with an unidentified entity)

Key issues regarding investors:

  • Non-accredited investors may participate, but the amount of their investment is limited to:
    • The greater of (a) $2,000 or (b) 5% of the lesser of investor’s net worth or annual income, if investor’s net worth or annual income is less than $100,000; or
    • The lesser of (a) $100,000 or (b) 10% of the lesser of investor’s net worth or annual income, if investor’s net worth and annual income are both equal to or greater than $100,000
  • Investors must hold purchased securities for at least one year, except for securities
    • Repurchased by issuer
    • Sold to family members or related trusts, or in connection with the investor’s divorce or death
    • Sold to accredited investors
    • Sold in a registered offering

Key transaction mechanics:

  • Issuer must use a registered internet portal/intermediary as the exclusive medium for the offering
  • Issuer may not advertise the offering (other than notifications that specify the terms of the offering, identify the issuer and link to the intermediary—similar to a “tombstone” ad in a financial newspaper)
  • Certain communications through the intermediary’s site are permissible

If you have questions regarding Regulation Crowdfunding please contact Douglas L. Rabuzzi, a Partner in Leech Tishman’s Corporate Practice Group. Doug is based in the Pittsburgh office and can be reached at 412.261.1600 or

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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in alternative dispute resolution, bankruptcy & creditors’ rights, construction, corporate, employee benefits, employment, energy, environmental, safety & toxic torts, estates & trusts, family law, government relations, immigration, insurance coverage & corporate risk mitigation, intellectual property, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Los Angeles, New York and Wilmington, DE.