By Courtney Jared Bannan, Esq.
This content is for informational and educational purposes only. This is not legal or professional advice. Please seek the guidance of an attorney if you need assistance with your specific project.
Crowdfunding and Regulation CF (Crowdfunding) are two distinct methods for raising capital, each with its own set of characteristics and regulatory frameworks.
Crowdfunding
Crowdfunding is a broad term that encompasses various methods of raising funds from a large number of individuals, often through online platforms. It includes rewards-based crowdfunding, donation-based crowdfunding, and equity-based crowdfunding. In rewards-based crowdfunding, backers contribute funds in exchange for rewards or perks, such as early access to a product or service. Donation-based crowdfunding involves individuals donating money to support a cause or project without expecting anything tangible in return. Equity-based crowdfunding allows investors to receive equity or ownership stakes in the company in exchange for their investment.
Regulation CF (Crowdfunding)
Regulation CF, also known as Regulation Crowdfunding, is a specific provision under the U.S. Securities and Exchange Commission (SEC) regulations, enacted as part of the JOBS Act. It allows small businesses and startups to raise capital from a large pool of investors, including non-accredited investors, through SEC-registered online platforms. Regulation CF enables companies to raise up to a certain amount of capital within a 12-month period, subject to specific limits based on their revenue and funding needs. Companies conducting Regulation CF offerings must comply with disclosure requirements, financial reporting obligations, and other regulatory guidelines established by the SEC.
Key Differences
Regulatory Framework: Crowdfunding encompasses a broad range of fundraising methods, while Regulation CF specifically refers to equity-based crowdfunding conducted under SEC regulations.
Investor Participation: Crowdfunding campaigns can involve a wide range of backers, including individuals, businesses, and organizations, depending on the type of crowdfunding being used. Regulation CF allows companies to raise funds from both accredited and non-accredited investors, subject to certain investment limits.
Disclosure and Reporting Requirements: Regulation CF imposes specific disclosure and reporting obligations on companies conducting offerings, including providing financial statements, business plans, and other relevant information to investors. These requirements are intended to protect investors and ensure transparency in the fundraising process.
Investment Limits: Regulation CF sets limits on the amount of capital companies can raise through crowdfunding offerings within a 12-month period, based on their revenue and funding needs. These limits vary depending on whether the company is conducting a Tier 1 or Tier 2 offering under Regulation CF.
Investor Rights: Equity-based crowdfunding under Regulation CF typically grants investors certain rights, such as voting rights and the potential for dividends or returns on their investment, depending on the terms of the offering. In contrast, backers in rewards-based or donation-based crowdfunding campaigns generally do not receive equity or ownership stakes in the company.
In summary, while both crowdfunding and Regulation CF involve raising capital from a crowd of individuals, Regulation CF is a specific type of equity-based crowdfunding that operates under SEC regulations, providing a structured framework for companies to raise funds from investors while complying with legal requirements and investor protection measures.
Courtney Jared Bannan is the CEO and Founder of The Entrepreneur’s Law Group, a boutique law firm tailored to entrepreneurs, start-ups, and large enterprises with expanding verticals. Ms. Bannan is admitted to practice law in Florida, New York and Texas and admitted in Arizona as Certified In-House Counsel. She is also barred in the United States District Courts for the Northern Middle and Southern Districts of Florida and the 11th Circuit Court of Appeals. Courtney has over twenty years’ experience in experience in Multifamily Commercial Real Estate, Commercial Real Estate Transactions, Residential Real Estate, Corporate Law, International Law, Intellectual Property, Mergers and Acquisitions, Securities, Crowdfunding, Media and Entertainment law, Business Litigation, Franchising and Licensing Law, Technology Law, Advertising and Social Media Law, and Data and Privacy Law.
Ms. Bannan began her career as a litigator and was the Chief Legal Officer of several large corporations, including a FinTech, where she gained experience in multiple areas of law.
Prior to her career as an attorney, Ms. Bannan was an established writer and editor for several publications.
Ms. Bannan’s book, “Ready, Set, Launch” is a comprehensive playbook for businesses and entrepreneurs and can be purchased at Barnes & Nobel, Amazon or at www.courtneyjaredbannan.com.
The Entrepreneur’s Law Group has years of experience in handling complex business litigation and transactional legal matters specific to entrepreneurs and business owners. If you are starting or growing your business and need compliance guidance, please schedule an appointment today at www.courtneyjaredbannan.com for a consultation.
