Finance term
Regulation CF (Equity Crowdfunding)
Also known as: Reg CF, Regulation Crowdfunding, JOBS Act Title III crowdfunding, equity crowdfunding, investment crowdfunding
Definition
Regulation CF (Reg CF) is the SEC's crowdfunding exemption from Securities Act registration, enabling companies to raise up to $5 million per 12-month period from non-accredited investors through SEC-registered funding portals. Created by the JOBS Act (Title III, 2012) and effective since 2016, Reg CF is the only SEC exemption that democratizes equity investment to the general public. See sec.gov/cfportal and sec.gov/smallbusiness/exemptofferings/regcrowdfunding.
Detailed explanation
Regulation CF (17 CFR Part 227) implements Title III of the JOBS Act, creating a pathway for small businesses and startups to raise capital from retail (non-accredited) investors without a full SEC registration statement — the first legal structure in U.S. history permitting general public equity investment in early-stage companies.
**Key parameters (as amended by SEC in 2021):** - **Maximum raise:** $5 million per 12-month period (raised from $1.07M in 2021) - **Eligible investors:** All U.S. investors — accredited and non-accredited. Non-accredited investors face investment limits based on income/net worth (the lesser of $2,200 or 5% of the lesser of annual income or net worth if both are under $107,000; 10% of lesser of income or net worth otherwise, up to $107,000 per year across all Reg CF investments) - **Intermediary requirement:** All Reg CF offerings must be conducted through an SEC-registered funding portal (regulated under FINRA) or a registered broker-dealer - **Disclosure (Form C):** Issuers must file Form C with the SEC disclosing business description, officers and directors, use of proceeds, target offering amount, price per security, risks, and financial statements (unaudited for raises under $124K; reviewed for under $1.235M; audited for over $1.235M) - **12-month lock-up:** Securities sold in Reg CF offerings may not be resold for 12 months (with limited exceptions)
**Practical use cases:** Reg CF works best for businesses with loyal customer bases or mission-driven appeal that can convert customers into investors through community marketing. Consumer brands, local businesses, social enterprises, and fan-supported businesses (breweries, sports teams, media companies) have raised successfully under Reg CF. Venture-scale startups typically find Reg D more practical (no dollar caps, no disclosure burden for sophisticated investors).
**Compliance obligations:** Annual report (Form C-AR) required each year until the company is reporting under Exchange Act (10-K/10-Q), or has fewer than 300 holders of record, or total assets below $10M for two consecutive years. See sec.gov/smallbusiness/exemptofferings/regcrowdfunding for the complete Reg CF framework.
◈ Worked example
- Community brewery raise: A craft brewery raises $750K from 320 investors (customers, fans, community members) through a Reg CF offering at $100/unit. Form C disclosed on the SEC's EDGAR/CFPORTAL. Investors receive revenue share certificates. The brewery's existing customer base drives the offering — typical Reg CF use case.
- Investment limit calculation: An investor has $60,000 annual income and $80,000 net worth. Both are under $107,000, so the limit = 5% of the lesser ($60,000) = $3,000 per year across all Reg CF investments. In the year, they invest $1,500 in one offering and $1,000 in a second — within the annual limit.
- Financial statement tier: A startup raising $400K under Reg CF needs reviewed (not audited) financial statements — less expensive than an audit. A startup raising $2.5M needs audited financials — a $20K-$50K cost depending on company size. Financial statement cost is a meaningful factor in Reg CF economics.
Common questions
The most-asked questions about Regulation CF (Equity Crowdfunding) — answered straightforwardly.
Can any U.S. company use Reg CF? +
Most U.S. companies can use Reg CF with some exceptions: companies required to file under the Exchange Act (public companies), investment companies regulated under the Investment Company Act, companies incorporated outside the U.S., companies with no specific business plan or blank-check companies, and companies in default of prior Reg CF annual report obligations. See sec.gov/smallbusiness/exemptofferings/regcrowdfunding for the complete eligibility rules.
What is a funding portal and how does it differ from a broker-dealer? +
A funding portal is an SEC-registered online platform specifically designed for Reg CF offerings — with more limited activities than a full broker-dealer (cannot offer investment advice, cannot handle investor funds directly). Examples include Republic, Wefunder, and StartEngine. Broker-dealers registered with FINRA can also facilitate Reg CF offerings with broader capabilities (investor advisory, custody). All Reg CF intermediaries are listed on FINRA's BrokerCheck and the SEC's EDGAR portal.
What happens after my 12-month lock-up expires under Reg CF? +
After the 12-month lock-up, Reg CF securities can be resold to accredited investors, family members, in connection with a registered offering, or to the issuer itself. There is no established secondary market for most Reg CF securities — investors should treat them as illiquid. Some funding portals have attempted to build secondary trading for Reg CF securities, but liquidity remains limited compared to exchange-listed stocks.
Further reading
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