Knowing the Intermediary

Regulation Crowdfunding header

Offer, Purchase, and Issuance of Securities through the Intermediary


Under Section 4(a)(6) of the Securities Act

Process for Offer, Purchase, and Issuance of Securities

  1. Registration and Compliance
    • Intermediary Requirements: The intermediary, typically a funding portal or broker-dealer, must be registered with the Securities and Exchange Commission (SEC) and be a member of the Financial Industry Regulatory Authority (FINRA).
    • Issuer Requirements: The issuer must comply with the disclosure requirements set forth in Regulation Crowdfunding, including providing information on its business, financial condition, and the intended use of proceeds.
  2. Disclosure Obligations
    • Form C: Issuers must file Form C with the SEC, which includes offering details, financial statements, and disclosures about the business and the offering.
    • Ongoing Updates: Issuers are required to update the information in Form C through amendments if there are material changes or updates.
  3. Offering Process
    • Platform Listing: The offering is listed on the intermediary’s platform where potential investors can review the details.
    • Investor Education: Intermediaries must ensure that investors review educational materials about crowdfunding investments, the process, and associated risks.
    • Communication Channels: The platform must facilitate communication between the issuer and investors to answer questions and provide additional information.
  4. Investment Limits
    • Investor Caps: Regulation Crowdfunding imposes investment limits based on the investor’s annual income and net worth to protect against significant financial loss.
    • Verification: Intermediaries are responsible for ensuring that these limits are adhered to by verifying investor information.
  5. Transaction Execution
    • Subscription Process: Investors submit their subscription agreements and funding through the intermediary’s platform.
    • Escrow Services: Funds are typically held in escrow until the target offering amount is reached or the offering is closed.
    • Issuance of Securities: Once the offering is successfully funded, the issuer finalizes the issuance of securities to the investors and the funds are transferred to the issuer.

Risks Associated with Purchasing Securities

  1. Investment Risk
    • High Failure Rate: Investments in startups and small businesses are inherently risky, with a high likelihood of failure.
    • Illiquidity: Crowdfunded securities are often illiquid, meaning they cannot be easily sold or exchanged for cash.
  2. Lack of Information
    • Limited Disclosure: While issuers are required to provide certain information, it may be less comprehensive compared to traditional public offerings.
    • Information Asymmetry: Investors may not have access to all material information about the issuer’s operations and prospects.
  3. Valuation and Return Uncertainty
    • Difficult Valuations: Valuing early-stage companies can be challenging and speculative.
    • Uncertain Returns: There is no guarantee of returns, and investors could lose the entire investment amount.
  4. Regulatory and Legal Risks
    • Compliance Failures: Issuers or intermediaries failing to comply with regulatory requirements can result in penalties or voided offerings.
    • Fraud: The risk of fraudulent activity, although intermediaries are required to take measures to mitigate this risk.
  5. Dilution Risk
    • Future Funding Rounds: Subsequent funding rounds could dilute the ownership percentage of early investors.

Investors should be fully aware of these risks and consider their investment horizon, risk tolerance, and the potential impact on their financial situation before participating in a crowdfunded securities offering. Consulting with a financial advisor is recommended to navigate these investments effectively.

For specific legal or financial advice, always consult with a professional in the field.


Regulation Crowdfunding enables eligible companies to offer and sell securities through crowdfunding. The rules:

  • require all transactions under Regulation Crowdfunding to take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal
  • permit a company to raise a maximum aggregate amount of $5 million through crowdfunding offerings in a 12-month period
  • limit the amount individual non-accredited investors can invest across all crowdfunding offerings in a 12-month period and
  • require disclosure of information in filings with the Commission and to investors and the intermediary facilitating the offering

Securities purchased in a crowdfunding transaction generally cannot be resold for one year. Regulation Crowdfunding offerings are subject to “bad actor” disqualification provisions.

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