Regulation CF Equity Crowdfunding

What is Regulation CF?

Regulation CF’s crowdfunding rules are in Section 4(a)(6) of the Securities Act. It allows startups and small businesses to use the internet to raise capital through equity investments from a large number of investors. Regulation CF is available for offerings up to $1 million, giving accredited and non-accredited investors alike an accessible way to fund growing companies.

Who Qualifies as an Accredited Investor?

An accredited investor is an individual or entity that meets specific guidelines set by the SEC. These standards are in place to ensure investors have access to appropriate investments for their knowledge and financial situation. To qualify as an accredited investor, individuals must have a net worth of at least $1 million (excluding his primary residence) or earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year. Entities must meet certain taxable income criteria.

What Are the Risks Involved With Crowdfunding?

Investors should be aware of the risks associated with crowdfunding such as financial losses, lack of liquidity for their investment, and increased fraud. Unlike traditional investments in publicly-traded securities, it can be very difficult (if not impossible) to sell your shares or earn dividends for crowdfunded investments. Additionally, investors face a higher risk of fraud since not all small businesses issuing equity crowdfunding have been audited or registered with the SEC.

How to Create a Successful Campaign on Equity Crowdfunding Platforms

Having a strong plan in place is essential for a successful Crowdfunding campaign. Before you launch your campaign, make sure to identify your target audience and develop strategies for marketing and outreach to help raise awareness. Additionally, establish goals for the amount of money you’d like to raise, what milestones you aspire to meet, and have clear timelines for each stage of the process. Finally, it’s important to make sure your campaign remains active and up-to-date throughout: thanking contributors publicly and keeping them updated on the success of your venture will strengthen their ties to your project over time.

In order to maximize your success in Crowdfunding, stay actively engaged with contributors, keep detailed records and accounting of your transactions and campaign finances, and adhere to compliance regulations from the SEC (Securities and Exchange Commission). Making sure the process is organized from start to finish will help protect you against potential legal repercussions down the line. Furthermore, becoming compliant with Regulation CF (Crowdfunding) helps position businesses for growth by making it possible for non-accredited investors to take part. 

This type of investment structure gives many more people access to equity in small businesses, especially those just starting out. 

Overall, having a comprehensive plan in place can make a world of difference for companies looking to use equity crowdfunding platforms to raise capital.

Understanding Crowdfunding Securities Laws

It’s important to understand that you are selling securities when you conduct a crowdfunding campaign. In order to remain compliant, make sure to partner with a registered funding portal and utilize the services of an experienced legal counsel knowledgeable in federal and state securities laws. Additionally, certain disclosures are required for campaigns conducted through Regulation CF Equity Crowdfunding, including risk factors associated with your venture and the terms of the securities being offered. Make sure to include this information in your offering documents before launching a campaign.

Regulation CF’s crowdfunding rules are in Section 4(a)(6) of the Securities Act. These rules have made it easier for companies to raise money from a wider range of investors than ever before. Traditional crowdfunding models may or may not involve the offer and sale of a security, but if so, the issuer must comply with federal and state securities laws. One notable benefit of Regulation CF is that state blue-sky laws are preempted.

Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.