If you are looking to launch an SEC crowdfunding campaign, it is essential to understand the financial requirements. There are several basic requirements that you need to meet to comply with SEC crowdfunding regulations. Let’s investigate the audit and review requirements for Regulation A+ (Reg A Crowdfunding), Regulation Crowdfunding (Reg CF), and Regulation D (Reg D) offerings.
Financial Disclosures For Reg D
When it comes to SEC crowdfunding, companies are required to provide certain financial information to comply with Regulation D Rule 506. A company must file a Form D which includes information about the company and its offering. As Form D is a notice filing, the issuer does not have to wait for the SEC to respond. No review or audit is required if the offering is limited to accredited investors.
However, if the offering is to non-accredited investors, then financial disclosures follow the same requirements as Reg A.
Disclosures to Non-accredited Investors
The issuer must provide the following financial information to non-accredited investors:
- Disclosure documents that generally contain the same type of information that is disclosed in Regulation A offerings.
- Financial statement information specified in Rule 506, which outlines the non-accredited disclosure requirements based on offering limits:
- For offerings up to $20,000,000, the financial statement information required for disclosure is outlined in paragraph (b) of Part F/S of Form 1-A.
- For offerings above $20,000,000, the financial statement information required for disclosure is outlined in paragraph (c) of Part F/S of Form 1-A (referenced in § 239.90 of this chapter).
Also, while companies are not required to provide disclosure documents to accredited investors if any disclosure documents or information were given to accredited investors, this information must also be available to non-accredited investors.
Reviews and Audits For Reg CF Crowdfunding
For Reg CF, there are different requirements depending on the amount of money being raised. If a company is raising under $100,000, there is no audit or review requirement. However, a company officer must provide tax returns and certification of GAAP financial statements. Other requirements include:
- For offerings between $100,000 and $500,000, the company must provide reviewed or audited financial statements on the prior two fiscal years.
- For offerings between $500,000 to $1M for the first time, then a review or audit of the financial statements of the prior two fiscal years is required.
- For offerings raising $500,000 or more and the company previously performed an offering under Regulation CF, a CPA audit on the financial statements for the past two fiscal years is necessary.
Reg A+ Financial Requirements for SEC Crowdfunding
Under Reg A+, there are different levels of financial disclosures based on the Tier. For both tiers, issuers must file Form 1-A with the SEC, which is an extensive financial disclosure. It requires business, financial, and legal information about the company and is subject to the review and comments of the SEC. Sales of securities under Reg A+ cannot commence until the issuer has cleared all comments.
Tier 1 requires the issuer to have the offering qualified at the state level prior to sales.
Tier 2 offering issuers must provide audited financial statements for their prior two years from an independent certified public accountant (a one-year company files a one-year audit) in the offering statement and annual reports. All filings with the SEC must be prepared in accordance with GAAP by an independent certified public accountant. There are disclosure requirements as annual, semi-annual, and current reports. No state registration requirement.
If an SEC crowdfunding company is listed for public exchange, additional requirements like SEC-mandated annual audits and PCAOB quarterly audits may be necessary.
Any Questions?
Assurance Dimensions is a CPA audit firm that is registered with the PCAOB and provides audit and assurance services to companies throughout the United States and Canada. Our team of knowledgeable accounting professionals can help you navigate the complexities of SEC crowdfunding and ensure that you are in compliance with all financial requirements. Contact us today to learn more about how we can help you with PCAOB audits or other assurance services.
