FAQ on Eligibility for Investing in Regulation Crowdfunding (Reg CF) Raises
Who is eligible to invest in Reg CF raises?
Reg CF allows a wide range of investors to invest in startup and small business crowdfunding offerings. In the United States, both accredited and non-accredited investors are eligible to participate in these offerings. However, there are certain limitations and rules that apply, which are designed to protect less experienced investors from taking on too much financial risk.
Are International Investors eligible to participate in Reg CF raises?
International investors looking to diversify their portfolios and tap into the innovative potential of small and emerging companies in the United States may consider investing in Regulation Crowdfunding (Reg CF) offerings.
Before diving into Reg CF investments, it's crucial for international investors to understand the rules and regulations set forth by the U.S. Securities and Exchange Commission (SEC). These regulations are designed to protect investors and ensure a fair and transparent fundraising process for companies.
Key points for international investors to consider include:
- Eligibility: While Reg CF is open to international investors, each country may have its own regulations regarding outbound investments. Investors should consult with local financial advisors or legal counsel to ensure compliance with their home country's laws.
- Investment Limits: The SEC has established investment limits based on an investor's net worth and annual income, which apply to all investors, domestic and international. These limits determine how much an individual can invest across all Reg CF offerings in a 12-month period.
- Due Diligence: As with any investment, conducting thorough due diligence is essential. This includes reviewing the company's offering statement on Form C, which provides detailed information about the business, its financial condition, and the terms of the offering.
- Tax Considerations: International investors should be aware of any tax obligations that may arise from investing in U.S. securities, including potential withholding taxes. It's advisable to consult with a tax professional to understand the implications in both the U.S. and the investor's home country.
- Currency Risk: Investments in Reg CF offerings are denominated in U.S. dollars, so international investors should consider the currency exchange rate risk and the potential impact on their investment returns.
Can Canadian investors participate in Reg CF raises?
Only accredited investors from Canada are eligible to invest in Reg CF raises due to the current laws for Canadian retail investors, which do not allow their participation in such offerings. Canadian investors must meet the criteria for accredited investors as defined by their local jurisdiction and the SEC.
What is an accredited investor?
An accredited investor, in the context of a natural person, includes anyone who:
- Earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
- Has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
There are other categories of accredited investors, including certain institutions and entities. The full definition can be found on the SEC's website.
Are there any countries whose residents are not eligible to invest in Reg CF raises?
Yes, residents of countries on the Office of Foreign Assets Control (OFAC) list of sanctioned countries are not eligible to invest in Reg CF raises. The OFAC list includes countries with which the United States has imposed various sanctions. The list of sanctioned countries can change, so it is important to check the current list on the OFAC website.
Where can I find more information about Reg CF and investment eligibility?
For more detailed information about Regulation Crowdfunding and investor eligibility, please visit the SEC's website on Regulation Crowdfunding:
- SEC - Regulation Crowdfunding
- SEC - Investor Bulletin: Crowdfunding for Investors
- SEC - Accredited Investors
- OFAC Sanctions Programs and Country Information
Please note that the information provided here is for general informational purposes only and may not reflect the most current legal developments. Potential investors should consult with a financial advisor, attorney, the company you are attempting to invest in, or the relevant regulatory authorities to ensure they understand their eligibility before participating in a Reg CF offering.