BizTech Law Blog

The SEC Crowdfunding Proposed Regulations: Progress Updates & Post Offering Issuer Reporting Requirements

Progress Updates

During the course of a crowdfunding offering, the proposed SEC crowdfunding regulations require the issuer (the company raising capital) to provide a progress update no later than five business days after the issuer reaches one-half of its targeted offering amount, and again after the issuer reaches 100 percent of its targeted offering amount.  If the issuer will accept proceeds in excess of the targeted offering amount, a third progress report will have to be filed no later than five business days after the offering deadline. 

The progress update is to be provided on Form C:  Progress Update (Form C-U).  Click here to see a copy of proposed Form C. 

The issuer will be required to file the Progress Update with the SEC on EDGAR, provide a copy to the issuer’s intermediary and investors signed up to date, and if the offering is continuing, make the Progress Update available to potential investors. 

Post-Offering Issuer Reporting Requirements

The proposed crowdfunding regulations include an annual report filing requirement, which we consider to be unduly burdensome, if not oppressive.  The annual report must be filed with the SEC on EDGAR, and posted on the issuer’s website.  The filing deadline is 120 days after the end of the issuer’s fiscal year. 

The annual report must include: 

• A narrative description of the issuer’s financial condition, similar to a traditional management’s discussion and analysis of financial condition and results of operations (also known as “MD&A”) required of publicly traded companies. 
• Financial statements of the same character the issuer had to provide in the offering (tax return plus compiled statements, reviewed statements, or audited statements, depending on the amount of money targeted to be raised).
• Company name, legal status, physical address and website address.
• With respect to each director/manager, and each person holding a position of officer (president, vice president, secretary, treasurer, principal financial officer, comptroller, principal accounting officer, and anyone else, regardless of title, who performs comparable functions):
• Name;
• Title of position with issuer;
• Period of time person served in position; and
• Business experience during past three years.
• Name of each person who owns (directly or beneficially) 20 percent or more of issuer's voting power.
• Description of issuer's business and issuer's anticipated business plan.
• Number of issuer's employees. 
• Risk factors associated with the holding investment. 
• Description of the ownership and capital structure of the issuer. 
• Description of the securities that were sold in the offering, including their terms, rights, dilution and restrictions on transfer, among other specifics. 
• Description of exempt offerings made by issuer in the last three years. 
• Related party transactions since the end of the last full fiscal year. 

Under the proposed regulations, an issuer who sold securities in a crowdfunding offering must continue to file and post annual reports until the issuer becomes an SEC reporting company (publicly traded), all of the securities sold in the crowdfunding offering are repurchased by the issuer or another party, or the issuer liquidates or dissolves.  This effectively means that annual reports will be required until the purchasers in the crowdfunding offering get an exit. 

The SEC’s rationale is that under the JOBS Act, the securities will be freely tradable after one year, and so potential purchasers need access to current information.  The SEC has requested comments as to whether exceptions to the ongoing reporting requirements should be adopted for small offerings (e.g., $100,000 or less).  We are strongly of the opinion that exceptions should be added.  For very small enterprises, the focus needs to be on making the business plan work, not on bearing the administrative burden and expense of ongoing reporting. 

Please contact Iris Linder (517-371-8127 or ilinder@fosterswift.com) for more information.

Categories: Crowdfunding, Venture Capital/Funding