Crowdfunding Under Regulation CF: Legal Considerations for Florida Startups Seeking Capital
How to Raise Up to $5 Million Without Traditional Venture Capital
For early-stage companies in Florida, raising capital can be one of the most daunting challenges in launching or scaling a business. Traditional venture capital is often out of reach, and small business loans may come with personal guarantees or rigid underwriting criteria. Regulation Crowdfunding (Reg CF), enacted under the JOBS Act and expanded by the SEC in 2021, has emerged as a viable alternative. It allows startups and small businesses to raise up to $5 million in a 12-month period from both accredited and non-accredited investors via SEC-registered online platforms.
However, while Reg CF makes capital formation more accessible, it also introduces a complex web of legal requirements that Florida entrepreneurs must navigate carefully. Failing to comply with the disclosure, filing, and communication rules can lead to SEC enforcement, rescission rights for investors, and reputational damage.
Consult a Florida securities lawyer to explore the compliance framework of Regulation CF and the legal pitfalls that Florida-based startups should avoid when seeking capital through crowdfunding.
What Is Regulation Crowdfunding?
Regulation CF was created under the Jumpstart Our Business Startups (JOBS) Act of 2012 to democratize investment and allow everyday investors to participate in startup funding. In 2021, the SEC significantly expanded its scope, increasing the annual fundraising limit from $1.07 million to $5 million and making it more practical for serious early-stage capital campaigns.
Unlike traditional private placements under Regulation D, Reg CF offerings must be conducted through a registered funding portal or broker-dealer, such as Wefunder, StartEngine, or Republic. These platforms serve as intermediaries, hosting offering pages, collecting funds, and performing certain investor vetting functions. However, the issuer—the company raising money—remains legally responsible for compliance with all federal securities laws.
Who Can Use Reg CF?
Most Florida-based corporations and LLCs can use Regulation CF if they are organized under U.S. law and not already a public reporting company. However, there are some important disqualifications:
- Companies with certain “bad actors” in management or ownership
- Investment funds and shell companies
- Companies that have failed to comply with past Reg CF reporting obligations
Startups that qualify can offer debt or equity securities to the public, including common stock, convertible notes, SAFEs (Simple Agreements for Future Equity), and more.
Disclosure Requirements Under Regulation CF
One of the core elements of Reg CF compliance is disclosure. Before launching an offering, the issuer must file Form C with the SEC and provide detailed information to the investing public. This includes:
- Business description and plan
- Use of proceeds
- Capital structure and risk factors
- Management background
- Financial statements, which may require independent review or audit depending on the size of the raise
- Ownership of 20% or more by any individual or entity
Issuers raising more than $124,000 (as of 2024) must include financial statements reviewed by a CPA, and offerings over $1.235 million must include audited financials—unless it’s the issuer’s first time raising under Reg CF.
Startups must also provide ongoing annual reports (Form C-AR) and update filings (Form C-U) for material changes or upon reaching fundraising milestones. These disclosures are public and accessible through the SEC’s EDGAR system, making accuracy and completeness essential to managing long-term reputational risk.
Pitfalls of Inadequate Disclosures
Many Florida entrepreneurs underestimate the legal exposure created by inaccurate, misleading, or incomplete disclosures in Reg CF offerings. Common pitfalls include:
- Exaggerating projections or market opportunity
- Failing to disclose founder compensation or conflicts of interest
- Glossing over pending litigation or financial distress
- Providing overly optimistic risk disclosures that downplay potential losses
Unlike Regulation D, which limits participation to accredited investors presumed to have the sophistication to bear financial loss, Reg CF opens the door to retail investors such as teachers, nurses, and retirees, who may not be able to absorb the risk. The SEC and courts apply a higher standard of care when issuers raise capital from the general public.
Legal liability can arise not only under Section 10(b) of the Securities Exchange Act (and Rule 10b-5), but also under Section 4A(c) of the Securities Act, which holds issuers accountable for any material misstatements or omissions in Reg CF offerings. Investors who were misled may seek rescission, requiring the company to return their funds with interest.
Advertising and Communications: Stay Within the Lines
While Reg CF permits issuers to promote their campaign, the rules around communications are strict. Before filing Form C, no promotional communications are allowed. After the Form C is filed, general advertisements are limited to “tombstone” communications, which can include:
- The name of the company
- A brief description of the business
- The terms of the offering
- A link to the crowdfunding portal
Issuers may also use “testing the waters” tools in some contexts, but care must be taken not to condition the market in a way that violates anti-fraud rules. All public statements must be truthful and not misleading, regardless of the medium. This includes social media, podcasts, and interviews.
Practical Advice for Florida Startups
To raise capital successfully under Reg CF, Florida startups should begin by working with experienced securities counsel. Legal advisors can assist with drafting the Form C, reviewing financial statements, coordinating with auditors, and crafting compliant marketing materials.
It’s also vital to prepare for post-offering obligations, including annual reporting and managing investor relations with potentially hundreds of shareholders. Creating a sound corporate governance structure, including accurate cap tables and clearly written shareholder agreements, is essential to preserving control and protecting long-term company value.
Founders should also explore whether a Reg A+ or Reg D offering might be more suitable depending on their funding goals, investor base, and readiness for financial disclosure.
Contact The Law Offices of Clifford J. Hunt, P.A.
If you’re a Florida-based startup considering Regulation CF as a capital-raising strategy, don’t go it alone. At The Law Offices of Clifford J. Hunt, P.A., we have over 35 years of experience guiding entrepreneurs through federal and state securities law compliance. From drafting your Form C to advising on investor communications, we help ensure your offering is successful and legally sound.
Contact us today to schedule a consultation and learn how we can support your growth through strategic, compliant crowdfunding.
Sources:
sec.gov/resources-small-businesses/exempt-offerings/regulation-crowdfunding
sec.gov/rules-regulations/jumpstart-our-business-startups-jobs-act
