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Everything You Need to Know About Title III Crowdfunding

Everything You Need to Know About Title III Crowdfunding
The Siliconreview
16 March, 2021

When it comes to crowdfunding in the US market, there are various regulations laid down by the SEC. 

One such regulation is known as Title III Crowdfunding. It helps to mitigate the risks associated with crowdfunding investments and provides a safe platform to the fundraisers as well as the investors.

What is Title lll Crowdfunding?

It is also known as Reg CF. As per this regulation, fundraisers in the US can raise funds up to $1.07 million in a year. 

However, as per the recent update, the fundraising limit has been raised to $5 million. Now, companies can easily raise funds up to $5 million in a year’s time.

SEC regulates all the crowdfunding compliance rules. The companies need to raise funds using different financial options. Most of the money is raised by equity, i.e., 48%, followed by convertible debt, i.e., 27%. The rest should be raised via SAFE and other instruments.

Title ll and Title lll of the JOBS Act:

Before Title lll was introduced, Title ll was introduced in 2012. As per this rule, only accredited investors can invest money in crowdfunding projects. 

It means you need to have an annual income of more than $200,000. Apart from that, you also need to have a net worth of more than $1 million. 

But with the introduction of Title lll in 2016, both accredited as well as non-accredited investors can invest their money in crowdfunding projects.

So if you are a startup and want to raise money, you can approach all types of investors. It made raising funds easier. 

Crowdfunding Investment Limitations:

Even though non-accredited investors can invest their money in crowdfunding projects, there are various limitations. The biggest limitation is on the investment amount.

The investment amount depends on the annual income of the investor as well as their net worth. 

If the annual income of the investor is $30,000 and their net worth is $105,000, then they can invest only up to $2,200 in crowdfunding projects in the span of a year.

Similarly, if the annual income of the investor is $150,000 and their net worth is $80,000, then they can invest only up to $4,000 in crowdfunding projects in the span of a year.

It is either 5% of their net worth or annual income, whichever is higher or $2,200.

But, if the annual income of the investor is $150,000 and their net worth is $107,000, then they can invest only up to $10,700 in crowdfunding projects in the span of a year. It is 10% of their net worth. 

However, if the annual income of the investor is $1,200,000 and their net worth is $2,000,000, then they can invest only up to $107,000 in crowdfunding projects in the span of a year. It is the maximum investment limit.

Filling Title lll Crowdfunding Forms:

In order to raise money from the investors via crowdfunding, fundraisers need to fill a form. They have to fill Form C in order to become eligible. Apart from that, they have to disclose information about the company.

Here is the information they need to provide.

  • Name of the fundraiser/ company
  • Securities offered
  • Purpose and goal of funding
  • How the investors will be paid

If you want to raise money via crowdfunding in the USA, you need to fill this form and follow all the rules and regulations laid down by the SEC.