Frequently Asked Questions

No. Companies may not offer crowdfunding investments to you directly.

They must use a crowdfunding intermediary, such as a FINRA Broker-Dealer, LLC, or a funding portal.

Each must be registered with the Securities Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA).

Depending on the offering, an investor might pay up to an 8% fee for any investment they make on the platform.

This is subject to change at any time and is disclosed in the offering document of the company.

You can invest in four ways: Individually; as a self-directed IRA; as a Trust, or as an entity like a corporation or Limited Liability Company.

Electronic records will be held with the issuing company’s transfer agent or cap table management service.

Once your purchase of stock is complete, you will receive a confirmation email with details of your investment which will include a Countersigned Subscription Agreement.

As the offering is "Book Entry" this will operate as your proof of purchase.

If the target is met early, the company will notify you and may set a new target deadline. You will have the opportunity to cancel up to 48 hours before the new deadline. Campaigns must remain live for at least 21 days regardless of the target.

Regulation A+ (or “Reg A+”) is a new way to raise capital created by the Securities Exchange Commission (SEC). Effective March 25, 2015, SEC rules allow companies to test the attractiveness of their company offering to the investor market.

Under the new Regulation, companies can raise up to $75 million per year from individual investors. This means that start-ups and growing businesses don’t need an angel investor worth millions or billions of dollars to help take their company to the next level.

Regulation A+ dramatically improves the funding prospects for companies that are too small to make a regular IPO on the NASDAQ, for example, or which do not have access to a Private Placement or to Venture Capital.

It completely changes the prospect of raising capital, giving start-up, mid-stage, and late-stage companies the opportunity to raise capital from many smaller, individual investors, who become owners of shares in the company. While, of course, Angel investors and professional investors are encouraged to invest too.

Regulation A+ allows for two kinds of offerings, Tier 1 and Tier 2. Tier 2 allows companies to raise $75 million per year from individual investors, accredited investors, and institutions worldwide. Most companies choose Tier 2 because the Tier 1 requirement to obtain State by State Blue Sky exemption is very slow and very expensive.

Companies using Tier 2 do not need to satisfy state Blue Sky requirements to raise capital (with some exceptions).

Tier 1 permits capital raises of up to $20 million per year from individual investors, and of course, from accredited investors and institutions worldwide. With Tier 1, the SEC does not require an audit before filing. However, many U.S. states require audited financials for Tier 1 to satisfy their process.

The reporting requirements after the offering put some CEOs off. Management financial statements are required semi-annually, and an annual US-GAAP audit is necessary.

The degree of actual liquidity depends on the Issuer company's Reg A+ offering. If they list on the NASDAQ or NYSE, then liquidity can be excellent.

If they list on the OTCQB or the OTCQX, liquidity can be good to very good. If not, liquidity is limited to specialized Reg A+ aftermarket exchanges and broker-dealers that support Reg A+ share trading.

Insiders (management and founders) and investors that own more than 10% of the stock are restricted to selling less than 1% of the "Float" (the daily trading volume) per day.

*FORGE Life Global is not a law firm, and this is not legal advice. Please contact your lawyer with respect to any of the matters discussed here.

Reg A+ does not allow funding for the following:

• Companies with headquarters outside the U.S. or Canada. It is fine to move or set up the legal headquarters in the US or Canada for international businesses.

• Investment companies as defined by the Investment Company Act of 1940. Pure venture capital firms cannot use Reg A+. VC firms that are Debt based (minimum of 60% debt holdings) are allowed to use Reg A+ in specific circumstances - ask us and your securities attorney.

• Public companies. Reporting and non-reporting public companies are allowed to use Regulation A+.

• Development stage companies with no business plan or purpose.

• Companies issuing fractional, undivided interests in oil, gas, or mineral rights.

• Companies disqualified under the “bad actor” rules.

That’s it. If your company doesn’t fall into one of those exclusions, you’re eligible.

Anyone! (see exceptions below). Investors worldwide can invest under Regulation A+ into companies that make their stock offerings.

The only limitation is that investors cannot invest greater than 10% of their annual income or 10% of their net worth, excluding their homes.

Accredited investors ($1 million or more in net worth) are not limited in how much they can invest. Investors from outside the U.S. are welcome, with the same limits.

Regulations in some countries may restrict you from investing via Reg A+ offerings. You must check the regulations in your country.

Yes, in some circumstances. For businesses that lend themselves to segmenting their market, it may be possible to make multiple offerings by following a similar model to the one that Fundrise has used.

Each Reg A+ entity is a standalone business and shares one management service provider. In this way, Fundrise has conducted multiple Reg A+ offerings simultaneously since 2016.

So far, this model has only been Qualified by the SEC in real estate situations, but the SEC may allow the same approach in other business areas. Time will tell.

The SEC created this program so companies can make this test before having to spend the time and money it takes to make an SEC filing and get an audit done.

The SEC allows companies to market themselves in Testing The Waters (TM) with few restrictions. Companies can cost-effectively conduct a test using social media, email, online advertising, and more.

When you run a test for a couple of months, it will be clear if there is enough enthusiasm for your company to justify doing a Reg A+ offering.

If you choose to move forward, you can then get an audit done, get the SEC filing underway, and return to make your live investment offering when you are ready.

Testing The Waters (TM) enables companies to test the market to see if there is enough investor interest to make a Regulation A+ capital raise successfully.

There is no special sequence, no preference. The company itself, and any selling shareholders in an offering are made liquid on a pro-rated basis throughout the offering.

For example, if an offering is ended at 92% of the maximum goal, then all the selling shareholders in the offering will have sold 92% of the shares that they intended to sell in that offering.

Yes. If you set up a company in the USA or Canada, then you are allowed to use Reg A+ using that entity.

Most companies that take this route set up a "C" Corporation in Delaware, but you can also set up an LLC or a Limited Partnership.

The company must have US-based executives and Board members (not 100%, but primarily US-Based). It can operate outside of the USA, and it must have a legitimate business role and rights to satisfy the SEC and attract investors in the Reg A+ marketing.

A low minimum such as $100k for the first closing has some significant advantages based on observing companies doing Regulation A+ offerings:

1) A low minimum makes the offering real or "effective" very early in the process, which matters hugely to Broker-Dealers - they will not engage until that has taken place.

The higher the minimum, the less engagement from the Broker-dealer syndicate a company will get to the point where they will not engage at all.

2) Item 1 above applies to retail investors too. They are more inclined to invest when an offering is "Real" than when the whole thing could unravel if the minimum is not met.

3) A company can bring in capital early with a low minimum, so the cash flow impact of the marketing expenditures is largely neutralized from the earliest time in the process.

4) Some companies have failed to raise enough capital to meet their high minimum, then re-filed with the SEC for a lower minimum and re-launched their offering. This is very expensive and consumes a lot of time.

The SEC is Qualifying offerings with no minimum. The advantage of a low minimum is that when the offering exceeds it, the first closing can take place, and your company can then pay for the cost of ongoing marketing to investors from investment proceeds.

Then closings can be made weekly or similarly to get funds to your company bank account.

For offerings to pay for the purchase of an asset, such as buying a company or real estate, the offering minimum must be sufficient to complete the purchase, which places a heavier upfront cost burden on the offering company.

The fastest route is to start preparing to market the offering and start the Form 1-A Filing with the SEC at the same time.

Then it is possible to do the first closing (assuming a low funding minimum) about 90 days after starting the SEC filing and the marketing agency.

This approach has some cost risk exposure because you discover how appealing your offering is after you start the effort and spend $50k on the legal filing.

It has less risk in one important respect - you are less likely to have investor enthusiasm wane after months in the market in TestTheWaters(TM).

You should plan for two to three months marketing your company offering, improving it and making it more and more specific, then getting oversubscribed.

You can choose to do all this in parallel with or prior to starting the SEC registration process.

Current estimates are that it will take 71 days to get your (completed) Reg A+ filing qualified by the SEC.

Then allow from one week up to three months or so for the fundraising itself - longer in some circumstances.

It is permitted by the SEC to continue to sell shares for an extended period, and in some cases this is prudent.

Bear in mind the marketing costs of staying live mount up!

The primary issue here is how effective the early marketing was in engaging investor interest.

With a very large backlog of investor reservations accumulated, it will be a faster process for them to convert their reservations into actual investments.

In total, expect that the whole process will take from 4 to 6 months approximately.

This allows about one month to TestTheWaters(TM).

A continuous offering is one where not all the stock offered is sold at the beginning after the offering is qualified. Some stock is reserved for later sale.

To have a continuous offering the company needs to be current in its annual and semiannual report filing at the time of sale.

You can do a continuous offering (1) for selling shareholders, (2) for a dividend or an employee benefit plan of the issuer, (3) for securities issued upon the exercise of outstanding options, warrants, or rights, for securities issued upon conversion of other outstanding securities, (4) for securities pledged as collateral, or (5) securities that are part of an offering which commences within two calendar days after the qualification date, will be offered on a continuous basis, may continue to be offered for a period in excess of 30 days from the date of initial qualification, and will be offered in an amount that, at the time the offering statement is qualified, is reasonably expected to be offered and sold within two years from the initial qualification date.

Most companies will use continuous offerings for selling shareholders and stock that will be sold within the next two years after the offering is qualified.

Note that you cannot sell stock into the market in what is called an “at the market offering.” At the market simply means you are entering a sell order into the market just as you would if you were an ordinary shareholder holding free trading stock. You cannot just hit the bid. You have to find a buyer.

With a lower minimum, your offering will be attractive to more investors.

And as Registered Investment Advisors (RIAs) get involved and invest their client's savings in Reg A+ offerings, they will need a low minimum so they can spread their client's exposure over a number of companies.

We recommend that you set a low minimum to enable most consumers to invest. If you set your minimum high, you will put off many people, and that could make the difference between success and failure of your offering.

One company we follow has a minimum of $95 - this is great for broadening investor appeal.

This is not the same as the share price of your offering, of course.

There are a number of fixed costs per investor that make it financially unattractive to encourage investors to invest very small amounts.

No. A PE Fund or Private Equity Fund is not allowed to raise capital using Regulation A+.

Venture Capital Funds that use 60% or more in simple debt for certain specialized loan types and 40% or less in equity holdings can raise capital through Reg A+.

The relevant SEC regulations are Sections 3(c)(5)(A) and (B) of the Investment Company Act.

The key requirement to qualify under Section 3(c)(5)(A) or (B) is that the loans or receivables held by the issuer must have been incurred by the obligor to finance the acquisition of specific goods or services and not for general purposes.

If an issuer relies on Section 3(c)(5)(A), the loans and receivables held by the issuer must represent all or part of the sales price of merchandise, insurance or services.

If an issuer relies on Section 3(c)(5)(B), the credit extended to the obligor must have been used to pay for specific goods or services.

The fact that an obligation is secured by eligible property such as machinery and equipment is not by itself sufficient to permit reliance on Section 3(c)(5)(A) or (B).

This is a specialized type of fund, contact us for more details.

Yes. If you form a new corporate entity with properly prepared pro forma financials, then you can raise up to $75 million* per year by doing a Regulation A+ offering. You can use this method to raise growth capital for the newly independent business.

You cannot buy the business using this capital - the spinout or management buyout must occur first, afterwards, you can raise capital to expand the business. The type of company that will find it easiest to raise capital will have attractive pro forma sales and profit history and will be known to a large customer base that is positively disposed to the products or services of the company.

*For businesses that lend themselves to segmenting their market, it may be possible to make multiple offerings by following a similar model to the one that Fundrise has used. Each Reg A+ entity is a standalone business and shares one management service provider. In this way, Fundrise has conducted multiple Reg A+ offerings simultaneously since 2016. So far this model has only been Qualified by the SEC in Real Estate situations, but the SEC may allow the same approach in other business areas.

According to the Securities Act of 1933, every company has to register their offering with the SEC in order to sell their shares.

There are situations where exemptions allow companies to sell their shares without SEC registration. One such exemption is Regulation D or Reg D. Reg D provides three exemptions from the registration: Rule 504, Rule 505, and Rule 506.

For purposes of online equity crowdfunding, Rule 506 is most significant, and it splits into two variations: 506B and 506C. In each case, only accredited investors are allowed to invest.

With a 506C offering, the company can raise an unlimited amount of capital, but only from accredited investors. It is allowed for the issuing companies to promote and advertise their offerings. The issuer companies have to take steps to verify that the investors are actually accredited.

Although companies don't need to register with the SEC, they have to file a Form D, which includes information about the company's offering, promoters, the companies themselves, and additional information about the offerings.

The securities sold in a Reg D offering are “restricted” under US securities law and can be resold via Alternative Trading Systems (ATS) to other accredited investors but cannot be resold to the public for the first year after purchase.

After one year, investors that are not insiders (Affiliates) in your company may sell the securities publicly without restrictions (non-affiliates are investors that are not employees or executives, or founders of the company, and they own less than 10% of the company).

With the growing presence of Alternative Trading Systems (ATS), there are an increasing number of trading forums for the Reg D shares of early-stage privately-owned companies, whether that trading takes place in private transactions with accredited investors, or publicly to all investors.

When a company satisfies the listing requirements for an ATS, then it can have its securities quoted or posted on ATS platforms, so that non-affiliates can sell them.

The Reg D shares are treated differently from the ones sold under Regulation A. The one-year holding period applies even if the company has made a Reg A+ offering. The Reg A+ will make all securities in the company tradeable after their Rule 144 holding period has passed.

Of course, Rule 144 does not apply to shares purchased through the Reg A+. Public sale lockup restrictions are reduced for people or entities who are not affiliates after a year has passed since the securities were first acquired from the company.

There are exceptions to the one-year lockup in the Reg D context, see below. Holders of Reg D securities of non-reporting companies who are not affiliates, (affiliates are a type of insider) may resell in the following ways:

• At any time privately in sales under the so-called "Section 4 (1 ½) exemption", on the basis of an opinion of an attorney typically only to other accredited investors

• At any time privately under Section 4(a)(7) of the Securities Act to accredited investors

• At any time privately to "Qualified Institutional Buyers" under Rule 144A

• At any time outside the United States in reliance on Regulation S

• To the public under Rule 144, one year after the securities were issued.

The exemptions for private sales above all have conditions that have to be met, and the securities remain restricted.

There may also be contractual restrictions on such resales or requirements set forth in the company bylaws and state law requirements that have to be complied with as well.

Officers, directors, or investors who hold more than 10% of the company's securities, might be "affiliates" and their shares will be subject to additional restrictions on resale.

They'll likely need a lawyer to advise them whether these restrictions apply.

In the case of affiliates, the securities are both "restricted" and "control" and investors need to hold them a year from the date on which they got them from the company before they can be resold publicly.

The ways in which investors can sell publicly are the same as discussed above for non-affiliates.

Again, for affiliates, there are limitations on the number of shares they can sell at any one time, they'll need to sell through a broker or market maker, they'll have to file a Form 144 with the SEC, and "adequate current public information" must be available about the company, which means it must be compliant with Regulation A+ ongoing reporting requirements.

If investors want to resell within that year, they'll need to resell them in another private offering, probably limited to accredited or institutional investors.

Once the securities are resold publicly, they are no longer restricted.

Warrants are treated the same way as all other securities sold under Reg D.

Regulation S provides an SEC-compliant way for non-US and U.S. companies to raise capital outside the U.S. It is not necessary to have a company in the United States of America to use Regulation S.

A Regulation S offering can issue equity or debt securities. A company that makes its offering under Reg S can also use another method to raise capital from U.S. investors - usually Reg D 506C or Rule 144A.

Differences between Regulation S and Regulation D: Regulation S investors from outside the U.S. can be of any wealth level, which is much easier for the investor and the company raising capital than in Regulation D. Reg S is an excellent complement to Reg D because Reg S allows non-U.S. investors to invest in a U.S. company or a non-U.S. company on an equal basis to the Reg D terms, but with no requirement to be accredited (wealthy) investors.

Regulation S requires that the investment offer and sale must be made to investors outside the U.S., and U.S. investors must not be shown the non-U.S. investor terms. There is no required SEC registration for Reg S offerings, but methods and good practices must be followed.

Regulation S can also be used in combination with Rule 144A offerings. In this case, U.S. investors must be institutional, and they are immediately liquid after they invest. The security can be listed for trading on exchanges called A.T.S. - Alternative Trading Systems - with very little disclosure and reporting requirements.

"I have to use a Tier 1 offering if I am raising less than $20 million." Not true. Tier 2 Regulation A+ offerings start at zero, not at $20 million.

Tier 1 offerings start at zero too, and they cap out at $20 million. But Tier 2 offerings start at zero and extend up to $75 million per company per year.

Many people think that Tier 1 is easier, but this is not usually the case. Some states are taking a long time to conduct the interactive Blue Sky filings required for every state that your offering accepts investors from.

The cost of a legal service provider and the time it takes can easily get out of hand. Few Tier 1 filings are being funded for this reason.

"I need a two-year audit for the SEC but my company is only a year old - what shall I do?" The SEC requires an audit for Tier 2 offerings that extend back two years or as long as your company has existed. So if your company is one year old, you will need a one-year audit.

"Can I set a zero minimum for my Regulation A+ offering?" Yes, the SEC allows offerings that have no minimum goal where the intent is to grow the company, and doing so makes sense even with a small capital raise.

"The share price of a qualified Regulation A+ offering cannot be changed." Not true, you are allowed to change the share price of a qualified offering. You have to file a Form 253G2, which is an Offering Circular Supplement, and after the SEC has qualified the new share price, you can switch to the new price.

"Am I required to have a Broker-Dealer on my Reg A+ offering?" No, you are not required to have a broker-dealer. There are advantages and costs associated with having a broker.

You can add a broker-dealer to your Reg A+ after it has been Qualified by the SEC. When involving a broker, FINRA will review and accept or not accept the terms with the broker.

In a Reg A+ that includes a broker initially, the SEC will wait to Qualify the offering until FINRA has accepted the broker-dealer and terms. There is less schedule uncertainty when a broker arrangement is added post-SEC Qualification.