recordkeeping can help to minimize costs, and our estimates reflect
this assessment.
---------------------------------------------------------------------------

    \1699\ Joinvestor Letter.
---------------------------------------------------------------------------

D. Collections of Information are Mandatory

    The collections of information required under Rules 201 through 203
will be mandatory for all issuers. The collections of information
required under Rules 300 through 304 will be mandatory for all
intermediaries. The collections of information required under Rules 400
through 404 will be mandatory for all funding portals.

E. Confidentiality

    Responses on Form C, Form C-A, Form C-U, Form C-AR and Form C-TR
will not be kept confidential. Responses on Form ID will be kept
confidential by the Commission, subject to a request under the Freedom
of Information Act.\1700\ Responses on Forms BD and Forms Funding
Portal will not be kept confidential.
---------------------------------------------------------------------------

    \1700\ 5 U.S.C. 552. The Commission's regulations that implement
the Freedom of Information Act are at 17 CFR 200.80 et seq.
---------------------------------------------------------------------------

F. Retention Period of Recordkeeping Requirements

    Issuers are not subject to recordkeeping requirements under
Regulation Crowdfunding. Intermediaries that are brokers will be
required to retain records and information relating to Regulation
Crowdfunding for the required retention periods specified in Exchange
Act Rule 17a-4. Intermediaries that are funding portals will be
required to retain records and information under Regulation
Crowdfunding for the required retention periods specified in Rule
404.\1701\
---------------------------------------------------------------------------

    \1701\ See Rule 404 of Regulation Crowdfunding.
---------------------------------------------------------------------------

V. Final Regulatory Flexibility Act Analysis

    The Commission has prepared the following Final Regulatory
Flexibility Analysis (``FRFA''), in accordance with the provisions of
the Regulatory Flexibility Act,\1702\ regarding Regulation
Crowdfunding. It relates to the rules for securities-based crowdfunding
being adopted today. An Initial Regulatory Flexibility Analysis
(``IRFA'') was prepared in accordance with the Regulatory Flexibility
Act and included in the Proposing Release.
---------------------------------------------------------------------------

    \1702\ 5 U.S.C. 603.
---------------------------------------------------------------------------

A. Need for the Rule

    The regulation is designed to implement the requirements of Title
III of the JOBS Act. Title III added Securities Act Section 4(a)(6),
which provides a new exemption from the registration requirements of
Securities Act Section 5 for securities-based crowdfunding
transactions, provided the transactions are conducted in the manner set
forth in new Securities Act Section 4A. Section 4A includes
requirements for issuers that offer or sell securities in reliance on
the crowdfunding exemption, as well as for persons acting as
intermediaries in those transactions. The rules prescribe requirements
governing the offer and sale of securities in reliance on Section
4(a)(6) and provide a framework for the regulation of registered
funding portals and brokers that act as intermediaries in the offer and
sale of securities in reliance on Section 4(a)(6).
    As discussed above, the crowdfunding provisions of the JOBS Act,
which we implement through this regulation, are intended to help
alleviate the funding gap and accompanying regulatory concerns faced by
small businesses by making relatively low dollar offerings of
securities less costly and by providing crowdfunding platforms a means
by which to facilitate the offer and sale of securities without
registering as brokers, with a framework for regulatory oversight to
protect investors.

B. Significant Issues Raised by Public Comments

    In the Proposing Release, we requested comment on every aspect of
the IRFA, including the number of small entities that would be affected
by the proposed amendments, the existence or nature of the potential
impact of the proposals on small entities discussed in the analysis,
and how to quantify the impact of the proposed rules.
    Some commenters expressed concern that the IRFA did not comply with
the Regulatory Flexibility Act because it did not, in their view,
adequately describe the costs of the proposed rule on small entities,
and did not set forth significant alternatives which accomplish the
rule's objectives and which minimize the significant economic impact of
the proposal on small entities.\1703\ These commenters recommended that
the Commission republish for public comment a supplemental IRFA to
address these concerns. One commenter stated that the IRFA did not set
forth significant alternatives which accomplish the Commission's stated
objectives because the IRFA only considered alternatives related to
exempting small business from the proposed rules.\1704\ One commenter
believed that the Commission should exercise its discretion and
eliminate the need for two years of audited financial statements,\1705\
whereas another commenter viewed the audit requirement as a ``heavy-
handed'' regulatory approach.\1706\
---------------------------------------------------------------------------

    \1703\ See SBA Office of Advocacy Letter; NAHB Letter; Graves
Letter.
    \1704\ See SBA Office of Advocacy Letter.
    \1705\ See Guzik Letter.
    \1706\ See Rockethub Letter.
---------------------------------------------------------------------------

    Commenters suggested several alternatives which in their view could
reduce costs while accomplishing the rule's objectives.\1707\
Commenters suggested that the Commission use its discretion to raise
the threshold amount above which issuers would be required to provide
audited financial statements,\1708\ with one commenter specifically
recommending a threshold of $900,000.\1709\ One commenter also
suggested that the Commission adopt a ``question and answer'' format
for nonfinancial disclosures similar to the

format used in Regulation A offerings.\1710\ This same commenter also
recommended that the Commission could develop ``standard, boilerplate
disclosures'' for some of the ``more complicated'' nonfinancial
disclosures such as risk factors. This commenter stated that the
nonfinancial disclosures are not required under the JOBS Act and
encouraged the Commission to develop alternatives that would be less
burdensome for small issuers. One commenter recommended that the
Commission revise the ongoing financial reporting requirements for
small issuers to require the disclosure of reviewed rather than audited
financial statements, even if such issuers were previously required to
disclose audited financial statements pursuant to Section
4A(b)(1)(D).\1711\ This commenter also supported a requirement that
issuers submit annually an updated statement of financial condition,
similar in nature to an abbreviated management's discussion and
analysis of financial condition and results of operations.\1712\ This
commenter also suggested that issuers with total revenue below $5
million should be permitted to use either cash-based or accrual-based
methods of accounting, so that businesses using cash accounting will
not be required to create two sets of accounting records in order to
access crowdfunding.\1713\
---------------------------------------------------------------------------

    \1707\ See Graves Letter; SBA Office of Advocacy Letter.
    \1708\ Id.
    \1709\ See Graves Letter.
    \1710\ See SBA Office of Advocacy Letter.
    \1711\ See Graves Letter.
    \1712\ See Id.
    \1713\ See Id.
---------------------------------------------------------------------------

    One commenter suggested that smaller entities tend to be more
volatile and more illiquid than larger entities.\1714\ This commenter
explained that this illiquidity needs to be considered when crafting
regulations for small entity intermediaries and small entity issuers.
This commenter also stated that, regardless of whether an intermediary
has internal compliance personnel, or uses a third party, these
compliance costs ultimately will have to be borne by the investors and
issuers using the intermediary service. Another commenter expressed
concern that the statutory liability standard of Section 4A(c) will be
particularly burdensome for funding portals and noted that the IRFA
does not account for the large expense statutory liability will impose
on intermediaries.\1715\ Similarly, one commenter thought it was
appropriate to apply the same level of liability that is reserved for
issuers to broker-dealers, but not funding portals.\1716\ This
commenter urged the Commission to either eliminate liability for
funding portals, or create regulatory alternatives for funding portals
such as allowing them to limit the offerings on their platforms.\1717\
One commenter stated that the IRFA did not account for the cost of
prohibiting funding portals from limiting the offerings on their
platforms on the basis of subjective factors and suggested that the
Commission create a safe harbor for funding portals that allows them to
limit such offerings.\1718\
---------------------------------------------------------------------------

    \1714\ See RocketHub Letter.
    \1715\ See SBA Office of Advocacy Letter (stating that the
liability standard is especially burdensome for funding portals
because broker-dealers already have procedures in place for
conducting due diligence on issuers in order to meet FINRA
requirements, and funding portals will have to establish these
procedures anew).
    \1716\ See Graves Letter (stating that the Commission should
recognize the difference in the ability of funding portals and
registered broker-dealers to use discretion in selecting or curating
offerings, and apply liability to each as appropriate).
    \1717\ Id. (suggesting that funding portals should be allowed
the discretion to exclude offerings from their platforms if they
deem them to be overly risky, or if they view the offerings as
having shortcomings that could be detrimental to investors).
    \1718\ See SBA Office of Advocacy Letter.
---------------------------------------------------------------------------

C. Small Entities Subject to the Rules

    For purposes of the Regulatory Flexibility Act, under our rules, an
issuer (other than an investment company) is a ``small business'' or
``small organization'' if it has total assets of $5 million or less as
of the end of its most recently completed fiscal year and is engaged or
proposing to engage in an offering of securities which does not exceed
$5 million.\1719\ We believe that many issuers seeking to offer and
sell securities in reliance on Section 4(a)(6) will be at a very early
stage of their business development and will likely have total assets
of $5 million or less. Also, to qualify for the exemption under Section
4(a)(6), the amount raised by an issuer must not exceed $1 million in a
12-month period. Therefore, we estimate that all issuers who offer or
sell securities in reliance on the exemption will be classified as a
``small business'' or ``small organization.''
---------------------------------------------------------------------------

    \1719\ 17 CFR 230.157.
---------------------------------------------------------------------------

    For purposes of the Regulatory Flexibility Act when used with
reference to a broker or dealer, the Commission has defined the term
``small entity'' to mean a broker-dealer that: (1) Had total capital
(net worth plus subordinated liabilities) of less than $500,000 on the
date in the prior fiscal year as of which its audited financial
statements were prepared pursuant to Rule 17a-5(d) or, if not required
to file such statements, a broker or dealer that had total capital (net
worth plus subordinated debt) of less than $500,000 on the last
business day of the preceding fiscal year (or in the time that it has
been in business if shorter); and (2) is not affiliated with any person
(other than a natural person) that is not a small business or small
organization as defined in this release.'' \1720\ Currently, based on
FOCUS Report \1721\ data, there are 871 broker-dealers that are
classified as ``small'' entities for purposes of the Regulatory
Flexibility Act.\1722\ Because of some overlap in permitted functions
of funding portals and brokers, we look to the definition of a small
broker-dealer to quantify the estimated numbers of small funding
portals that will likely register under the new regulation. Based on
discussions with industry participants prior to the publication of the
proposed rules, we estimate that, of the anticipated 50 funding portals
we expect to register under the new regulation, 30 will be classified
as ``small'' entities for purposes of the Regulatory Flexibility Act.
---------------------------------------------------------------------------

    \1720\ 17 CFR 240.0-10(c).
    \1721\ FOCUS Reports, or ``Financial and Operational Combined
Uniform Single'' Reports, are monthly, quarterly, and annual reports
that broker-dealers generally are required to file with the
Commission and/or self-regulatory organizations pursuant to Exchange
Act Rule 17a-5 (17 CFR 240.17a-5).
    \1722\ See 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping and Other Compliance Requirements

    As discussed above, the final rules include reporting,
recordkeeping and other compliance requirements. In particular, the
final rules impose certain disclosure requirements on issuers offering
and selling securities in a transaction relying on the exemption
provided by Section 4(a)(6). The final rules require that issuers
relying on the exemption provided by Section 4(a)(6) file with the
Commission certain specified information about the issuer and the
offering, including information about the issuer's contact information;
directors, officers and certain beneficial owners; business and
business plan; current number of employees; financial condition; target
offering amount and the deadline to reach the target offering amount;
use of proceeds from the offering and price or method for calculating
the price of the securities being offered; ownership and capital
structure; material factors that make an investment in the issuer
speculative or risky; indebtedness; description of other offerings of
securities; and transactions with related parties. Issuers also will be
required to file updates with the Commission to describe the progress
of the issuer in meeting the target offering amount, unless the issuer
relies on the

intermediary to include this information on its platform, and to
disclose the total amount of securities sold in the offering. In
addition, any issuer that sells securities in reliance on Section
4(a)(6) also will be required to file with the Commission an annual
report to update the previously provided disclosure about the issuer's
contact information; directors, officers and certain beneficial owners;
business and business plan; current number of employees; financial
condition; ownership and capital structure; material factors that make
an investment in the issuer speculative or risky; indebtedness;
description of other offerings of securities; and transactions with
related parties.
    Intermediaries will be required to register with the Commission as
either brokers or as funding portals. Intermediaries also will be
required to provide quarterly reports to the Commission. Funding
portals will be required to make and keep certain records in accordance
with the rules. Registered broker-dealers are already required to make
and keep certain records in accordance with existing Exchange Act Rules
17a-3 and 17a-4. In addition, the final rules impose specific
compliance requirements on intermediaries, such as the maintenance of
written policies and procedures.
    In adopting this regulation, we took into account that the
regulation, as mandated by the JOBS Act, aimed to address difficulties
encountered by small entities. Accordingly, we designed the final rules
for intermediaries, to the extent possible in light of investor
protection concerns, with the needs and constraints of small entities
in mind, including small intermediaries. We believe that the reporting,
recordkeeping and other compliance requirements of the final rules
applicable to intermediaries will impact, in particular, small entities
that decide to register as funding portals. We believe that most of
these requirements will be performed by internal compliance personnel
of the broker or funding portal, but we expect that at least some
funding portals may decide to hire outside counsel and third-party
service providers to assist in meeting the compliance requirements.
Given the statutory limitations on crowdfunding, we believe that the
potential impact of the final rules on larger brokers and funding
portals will be proportionally less than on small brokers and small
intermediaries.

E. Agency Action To Minimize Effect on Small Entities

    In response to comments, the final rules include a number of
changes from the proposal, many of which were made to minimize the
effect of the rules on small entities. These changes are outlined in
detail above in the discussions of the rules adopted.
1. Issuers
    To address commenters' concerns about the cost of the rules to
small issuers, we have considered the alternatives suggested by
commenters and are adopting final rules which implement certain
alternatives we believe will minimize the cost of the final rules to
small issuers while also preserving necessary investor protection
measures.
    First, the final rules include an accommodation for issuers
conducting an offering for the first time in reliance on Regulation
Crowdfunding. Under the final rules, issuers conducting an offering of
more than $500,000 but not more than $1,000,000 that have not
previously sold securities in reliance on Section 4(a)(6) will not be
required to provide audited financial statements, unless audited
financial statements are otherwise available. Instead, the final rules
permit these issuers to provide reviewed financial statements. As
discussed above, this is a change from the proposal that is responsive
to concerns raised by many commenters about the expense of obtaining
audited financial statements, especially for start-up issuers without a
track record of successfully raising capital.\1723\ We believe that
requiring reviewed financial statements for issuers using Regulation
Crowdfunding for the first time to raise more than $500,000 but not
more than $1 million, rather than audited financial statements, will
minimize costs for issuers while providing sufficient investor
protection by maintaining the benefit of an independent review.
---------------------------------------------------------------------------

    \1723\ See, e.g., SBA Office of Advocacy Letter.
---------------------------------------------------------------------------

    As suggested by one commenter,\1724\ and as discussed above, the
final Form C includes an optional question-and-answer format that
issuers may elect to use to provide the disclosures that are not
required to be filed in XML format. Issuers opting to use this format
would prepare their disclosures by answering the questions provided and
filing that disclosure as an exhibit to the Form C. Given our
expectation that issuers engaged in offerings in reliance on Section
4(a)(6) will encompass a wide variety of industries at different stages
of business development, we do not believe it would be practical or
useful to develop standard, predetermined disclosure, as suggested by
one commenter, for such a variety of issuers. Also, as discussed above,
we do not believe that financial statements prepared in accordance with
other comprehensive bases of accounting, such as cash or accrual-based
accounting, as suggested by one commenter, provide investors with a
fair representation of a company's financial position and results of
operations, and it may be difficult for investors to determine whether
the issuer complied with such basis. Although we acknowledge, as some
commenters observed, that other bases of accounting may be less
expensive than U.S. GAAP, we believe the benefit of a single standard
that will facilitate comparison among securities-based crowdfunding
issuers justifies any incremental expenses associated with U.S. GAAP.
We also note that financial statements prepared in accordance with U.S.
GAAP are generally self-scaling to the size and complexity of the
issuer, which we expect to reduce the burden of preparing financial
statements for many early stage issuers, including small issuers.
---------------------------------------------------------------------------

    \1724\ Id.
---------------------------------------------------------------------------

    The final rules also maintain the progress update requirement, but
with a significant modification from the proposed rule which is
intended to reduce duplicative disclosure and minimize the burden on
small issuers. The final rules will require an issuer to file a Form C-
U at the end of the offering to disclosure the total amount of
securities sold in the offering, but the rules permit issuers to
satisfy the 50% and 100% progress update requirements by relying on the
relevant intermediary to make publicly available on the intermediary's
platform frequent updates about the issuer's progress toward meeting
the target offering amount.
    With respect to ongoing reporting requirements, rather than
requiring an issuer to provide financial statements in the annual
report that meet the highest standard previously provided, as proposed,
the final rules require financial statements of the issuer certified by
the principal executive officer of the issuer to be true and complete
in all material respects. We expect that reducing the required level of
public accountant involvement will minimize the costs and burdens for
all issuers, including small issuers, associated with preparing
reviewed and audited financial statements on an ongoing basis.
    In addition, the final rules provide for termination of the ongoing
reporting obligation in two additional circumstances: (1) The issuer
has filed at least one annual report and has fewer than 300 holders of
record, or (2) the

issuer has filed the annual reports for at least the three most recent
years and has total assets not exceeding $10,000,000. We believe the
addition of these termination events should help reduce related costs
for issuers that may not have achieved a level of financial success
that would sustain an ongoing reporting obligation.
    Overall, we considered whether to establish different compliance or
reporting requirements or timetables or to clarify, consolidate or
simplify compliance and reporting requirements for small issuers. As
noted above, we have made significant revisions to the final rules to
address commenters' concerns about compliance and reporting burdens
faced by issuers, especially small issuers. With respect to using
performance rather than design standards, we used performance standards
to the extent appropriate under the statute. For example, issuers have
the flexibility to customize the presentation of certain disclosures in
their offering statements.\1725\ We also considered whether there
should be an exemption from coverage of the rule, or any part of the
rule, for small issuers. However, because the rules have been designed
to implement crowdfunding, which focuses on capital formation by
issuers that are small entities, while at the same time provide
appropriate investor protections, we do not believe that small issuers
should be exempt, in whole or in part, from the proposed rules.
---------------------------------------------------------------------------

    \1725\ See Section II.B.3.
---------------------------------------------------------------------------

2. Intermediaries
    In response to comments, we have made a number of changes from the
proposal with respect to intermediaries that will help to alleviate the
compliance burdens faced by small entities. Most significantly, and in
response to commenters' concerns about the application of Section 4A(c)
liability,\1726\ as discussed above, Rule 402(b)(1) has been modified
from the proposal to include a safe harbor that provides a funding
portal the ability to determine whether and under what terms to allow
an issuer to offer and sell securities in reliance on Section 4(a)(6)
of the Securities Act through its platform; provided that a funding
portal otherwise complies with Regulation Crowdfunding. This change is
expected to allow intermediaries, including small entities, to reduce
their exposure to such liability by denying access to issuers that
present risk of fraud or other investor protection concerns. In
addition, in a change from the proposed rules, we are not requiring a
fidelity bond for intermediaries and also are expanding the definition
of qualified third party. These changes should reduce costs for all
intermediaries, including small entities.
---------------------------------------------------------------------------

    \1726\ See, e.g., SBA Office of Advocacy Letter.
---------------------------------------------------------------------------

    The final rules have been tailored to the more limited role
intermediaries will play in offerings made pursuant to Securities Act
Section 4(a)(6) (as compared to the wide range of services that a
traditional broker-dealer may provide). Registered brokers and funding
portals will engage in similar activities related to crowdfunding and
must comply with the adopted rules. The effective date for the
registration provisions for funding portals will allow funding portals
to be in a position to engage in crowdfunding at the same time as
registered brokers once the rest of the rules become effective. These
effective dates are designed to accommodate competitiveness concerns
related to funding portals' and registered broker dealers' abilities to
begin crowdfunding concurrently. While registered broker-dealers may
perform services that a funding portal is prohibited from performing,
the Exchange Act and rules thereunder, as well as SRO rules, already
govern those activities. Therefore, we believe that the adopted rules
are appropriate and properly tailored for the permissible activities of
all brokers and funding portals.
    We also considered whether, for small brokers or small funding
portals, to establish different compliance, reporting or timing
requirements, or whether to clarify, consolidate or simplify those
requirements in our rules. While the final rules are based in large
part on existing compliance requirements applicable to registered
brokers to the extent they are applicable to activities permitted for
funding portals, we do not believe we should establish different
requirements for small entities (whether registered brokers or funding
portals) that engage in crowdfunding because such activities are
limited in scope and, as such, the adopted rules are tailored to that
more limited activity.

VI. Statutory Authority

    We are adopting the rules and forms contained in this document
under the authority set forth in the Securities Act (15 U.S.C. 77a et
seq.), particularly, Sections 4(a)(6), 4A, 19 and 28 thereof; the
Exchange Act (15 U.S.C. 78a et seq.), particularly, Sections 3(b),
3(h), 10(b), 15, 17, 23(a) and 36 thereof; and Pub. L. 112-106, secs.
301-305, 126 Stat. 306 (2012).

List of Subjects

17 CFR Part 200

    Administrative practice and procedure, Authority delegations
(Government agencies), Organization and functions (Government
agencies). Reporting and recordkeeping requirements.

17 CFR Part 227

    Crowdfunding, Funding Portals, Intermediaries, Reporting and
recordkeeping requirements, Securities.

17 CFR Parts 232 and 239

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 240

    Brokers, Confidential business information, Fraud, Reporting and
recordkeeping requirements, Securities.

17 CFR Part 249

    Brokers, Reporting and recordkeeping requirements, Securities.

17 CFR Part 269

    Reporting and recordkeeping requirements, Securities, Trusts and
Trustees.

17 CFR Part 270

    Confidential business information, Fraud, Investment companies,
Life insurance, Reporting and recordkeeping requirements, Securities.
    In accordance with the foregoing, title 17, chapter II of the Code
of Federal Regulations is amended as follows:

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS

Subpart A--Organization and Program Management

0
1. The authority citation for Part 200, Subpart A, continues to read,
in part as follows:

    Authority:  15 U.S.C. 77c, 77o, 77s, 77z-3, 77sss, 78d, 78d-1,
78d-2, 78o-4, 78w, 78ll(d), 78mm, 80a-37, 80b-11, 7202, and 7211 et
seq., unless otherwise noted.
* * * * *

0
2. Amend Sec.  200.30-1 by:
0
a. Redesignating paragraphs (d), (e), (f), (g), (h), (i), (j) and (k)
as paragraphs (e), (f), (g), (h), (i), (j), (k) and (l), respectively;
and
0
b. Adding new paragraph (d).
    The addition reads as follows:

Sec.  200.30-1  Delegation of authority to Director of Division of
Corporation Finance.

* * * * *
    (d) With respect to the Securities Act of 1933 (15 U.S.C. 77a et
seq.) and

Sec. Sec.  227.100 through 227.503 of this chapter, to authorize the
granting of applications under Sec.  227.503(b)(2) of this chapter upon
the showing of good cause that it is not necessary under the
circumstances that the exemption under Regulation Crowdfunding be
denied.
* * * * *

0
3. Effective January 29, 2016, part 227 is added to read as follows:

PART 227--REGULATION CROWDFUNDING, GENERAL RULES AND REGULATIONS

    Authority: 15 U.S.C. 77d, 77d-1, 77s, 78c, 78o, 78q, 78w, 78mm,
and Pub. L. 112-106, secs. 301-305, 126 Stat. 306 (2012).

Sec.  227.400  Registration of funding portals.

    (a) Registration. A funding portal must register with the
Commission, by filing a complete Form Funding Portal (Sec.  249.2000 of
this chapter) in accordance with the instructions on the form, and
become a member of a national securities association registered under
section 15A of the Exchange Act (15 U.S.C. 78o-3). The registration
will be effective the later of:
    (1) Thirty calendar days after the date that the registration is
received by the Commission; or
    (2) The date the funding portal is approved for membership by a
national securities association registered under section 15A of the
Exchange Act (15 U.S.C. 78o-3).
    (b) Amendments to registration. A funding portal must file an
amendment to Form Funding Portal (Sec.  249.2000 of this chapter)
within 30 days of any of the information previously submitted on Form
Funding Portal becoming inaccurate for any reason.
    (c) Successor registration. (1) If a funding portal succeeds to and
continues the business of a registered funding portal, the registration
of the predecessor will remain effective as the registration of the
successor if the successor, within 30 days after such succession, files
a registration on Form Funding Portal (Sec.  249.2000 of this chapter)
and the predecessor files a withdrawal on Form Funding Portal;
provided, however, that the registration of the predecessor funding
portal will be deemed withdrawn 45 days after registration on Form
Funding Portal is filed by the successor.
    (2) Notwithstanding paragraph (c)(1) of this section, if a funding
portal succeeds to and continues the business of a registered funding
portal and the succession is based solely on a change of the
predecessor's date or state of incorporation, form of organization, or
composition of a partnership, the successor may, within 30 days after
the succession, amend the registration of the predecessor on Form
Funding Portal (Sec.  249.2000 of this chapter) to reflect these
changes.
    (d) Withdrawal. A funding portal must promptly file a withdrawal of
registration on Form Funding Portal (Sec.  249.2000 of this chapter) in
accordance with the instructions on the form upon ceasing to operate as
a funding portal. Withdrawal will be effective on the later of 30 days
after receipt by the Commission (after the funding portal is no longer
operational), or within such longer period of time as to which the
funding portal consents or which the Commission by order may determine
as necessary or appropriate in the public interest or for the
protection of investors.
    (e) Applications and reports. The applications and reports provided
for in this section shall be considered filed when a complete Form
Funding Portal (Sec.  249.2000 of this chapter) is submitted with the
Commission. Duplicate originals of the applications and reports
provided for in this section must be filed with surveillance personnel
designated by any registered national securities association of which
the funding portal is a member.
    (f) Nonresident funding portals. Registration pursuant to this
section by a nonresident funding portal shall be conditioned upon there
being an information sharing arrangement in place between the
Commission and the competent regulator in the jurisdiction under the
laws of which the nonresident funding portal is organized or where it
has its principal place of business, that is applicable to the
nonresident funding portal.
    (1) Definition. For purposes of this section, the term nonresident
funding portal shall mean a funding portal incorporated in or organized
under the laws of a jurisdiction outside of the United States or its
territories, or having its principal place of business in any place not
in the United States or its territories.
    (2) Power of attorney. (i) Each nonresident funding portal
registered or applying for registration pursuant to this section shall
obtain a written consent and power of attorney appointing an agent in
the United States, other than the Commission or a Commission member,
official or employee, upon whom may be served any process, pleadings or
other papers in any action under the federal securities laws. This
consent and power of attorney must be signed by the nonresident funding
portal and the named agent(s) for service of process.
    (ii) Each nonresident funding portal registered or applying for
registration pursuant to this section shall, at the time of filing its
application on Form Funding Portal (Sec.  249.2000 of this chapter),
furnish to the Commission the name and address of its United States
agent for service of process on Schedule C to the Form.
    (iii) Any change of a nonresident funding portal's agent for
service of process and any change of name or address of a nonresident
funding portal's existing agent for service of process shall be
communicated promptly to the Commission through amendment of the
Schedule C to Form Funding Portal (Sec.  249.2000 of this chapter).
    (iv) Each nonresident funding portal must promptly appoint a
successor agent for service of process if the nonresident funding
portal discharges its identified agent for service of process or if its
agent for service of process is unwilling or unable to accept service
on behalf of the nonresident funding portal.
    (v) Each nonresident funding portal must maintain, as part of its
books and records, the written consent and power of attorney identified
in paragraph (f)(2)(i) of this section for at least three years after
the agreement is terminated.
    (3) Access to books and records; inspections and examinations--(i)
Certification and opinion of counsel. Any nonresident funding portal
applying for registration pursuant to this section shall:
    (A) Certify on Schedule C to Form Funding Portal (Sec.  249.2000 of
this chapter) that the nonresident funding portal can, as a matter of
law, and will provide the Commission and any registered national
securities association of which it becomes a member with prompt access
to the books and records of such nonresident funding portal and can, as
a matter of law, and will submit to onsite inspection and examination
by the Commission and any registered national securities association of
which it becomes a member; and
    (B) Provide an opinion of counsel that the nonresident funding
portal can, as a matter of law, provide the Commission and any
registered national securities association of which it becomes a member
with prompt access to the books and records of such nonresident funding
portal and can, as a matter of law, submit to onsite inspection and
examination by the Commission and any registered national securities
association of which it becomes a member.
    (ii) Amendments. The nonresident funding portal shall re-certify,
on Schedule C to Form Funding Portal

(Sec.  249.2000 of this chapter), within 90 days after any changes in
the legal or regulatory framework that would impact the nonresident
funding portal's ability to provide, or the manner in which it
provides, the Commission, or any registered national securities
association of which it is a member, with prompt access to its books
and records or that would impact the Commission's or such registered
national securities association's ability to inspect and examine the
nonresident funding portal. The re-certification shall be accompanied
by a revised opinion of counsel describing how, as a matter of law, the
nonresident funding portal can continue to meet its obligations under
paragraphs (f)(3)(i)(A) and (B) of this section.

0
4. Effective May 16, 2016, part 227 is revised to read as follows:

PART 227--REGULATION CROWDFUNDING, GENERAL RULES AND REGULATIONS

Subpart A--General
Sec.
227.100 Crowdfunding exemption and requirements.
Subpart B--Requirements for Issuers
227.201 Disclosure requirements.
227.202 Ongoing reporting requirements.
227.203 Filing requirements and form.
227.204 Advertising.
227.205 Promoter compensation.
Subpart C--Requirements for Intermediaries
227.300 Intermediaries.
227.301 Measures to reduce risk of fraud.
227.302 Account opening.
227.303 Requirements with respect to transactions.
227.304 Completion of offerings, cancellations and reconfirmations.
227.305 Payments to third parties.
Subpart D--Funding Portal Regulation
227.400 Registration of funding portals.
227.401 Exemption.
227.402 Conditional safe harbor.
227.403 Compliance.
227.404 Records to be made and kept by funding portals.
Subpart E--Miscellaneous Provisions
227.501 Restrictions on resales.
227.502 Insignificant deviations from a term, condition or
requirement of this part (Regulation Crowdfunding).
227.503 Disqualification provisions.

    Authority: 15 U.S.C. 77d, 77d-1, 77s, 78c, 78o, 78q, 78w, 78mm,
and Pub. L. 112-106, secs. 301-305, 126 Stat. 306 (2012).

Subpart A--General

Sec.  227.100  Crowdfunding exemption and requirements.

    (a) Exemption. An issuer may offer or sell securities in reliance
on section 4(a)(6) of the Securities Act of 1933 (the ``Securities
Act'') (15 U.S.C. 77d(a)(6)), provided that:
    (1) The aggregate amount of securities sold to all investors by the
issuer in reliance on section 4(a)(6) of the Securities Act (15 U.S.C.
77d(a)(6)) during the 12-month period preceding the date of such offer
or sale, including the securities offered in such transaction, shall
not exceed $1,000,000;
    (2) The aggregate amount of securities sold to any investor across
all issuers in reliance on section 4(a)(6) of the Securities Act (15
U.S.C. 77d(a)(6)) during the 12-month period preceding the date of such
transaction, including the securities sold to such investor in such
transaction, shall not exceed:
    (i) The greater of $2,000 or 5 percent of the lesser of the
investor's annual income or net worth if either the investor's annual
income or net worth is less than $100,000; or
    (ii) 10 percent of the lesser of the investor's annual income or
net worth, not to exceed an amount sold of $100,000, if both the
investor's annual income and net worth are equal to or more than
$100,000;
    Instruction 1 to paragraph (a)(2). To determine the investment
limit for a natural person, the person's annual income and net worth
shall be calculated as those values are calculated for purposes of
determining accredited investor status in accordance with Sec.  230.501
of this chapter.
    Instruction 2 to paragraph (a)(2). A person's annual income and net
worth may be calculated jointly with that person's spouse; however,
when such a joint calculation is used, the aggregate investment of the
investor spouses may not exceed the limit that would apply to an
individual investor at that income or net worth level.
    Instruction 3 to paragraph (a)(2). An issuer offering and selling
securities in reliance on section 4(a)(6) of the Securities Act (15
U.S.C. 77d(a)(6)) may rely on the efforts of an intermediary required
by Sec.  227.303(b) to ensure that the aggregate amount of securities
purchased by an investor in offerings pursuant to section 4(a)(6) of
the Securities Act will not cause the investor to exceed the limit set
forth in section 4(a)(6) of the Securities Act and Sec.  227.100(a)(2),
provided that the issuer does not know that the investor has exceeded
the investor limits or would exceed the investor limits as a result of
purchasing securities in the issuer's offering.
    (3) The transaction is conducted through an intermediary that
complies with the requirements in section 4A(a) of the Securities Act
(15 U.S.C. 77d-1(a)) and the related requirements in this part, and the
transaction is conducted exclusively through the intermediary's
platform; and
    Instruction to paragraph (a)(3). An issuer shall not conduct an
offering or concurrent offerings in reliance on section 4(a)(6) of the
Securities Act of 1933 (15 U.S.C. 77d(a)(6)) using more than one
intermediary.
    (4) The issuer complies with the requirements in section 4A(b) of
the Securities Act (15 U.S.C. 77d-1(b)) and the related requirements in
this part; provided, however, that the failure to comply with
Sec. Sec.  227.202, 227.203(a)(3) and 227.203(b) shall not prevent an
issuer from relying on the exemption provided by section 4(a)(6) of the
Securities Act (15 U.S.C. 77d(a)(6)).
    (b) Applicability. The crowdfunding exemption shall not apply to
transactions involving the offer or sale of securities by any issuer
that:
    (1) Is not organized under, and subject to, the laws of a State or
territory of the United States or the District of Columbia;
    (2) Is subject to the requirement to file reports pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 (the
``Exchange Act'') (15 U.S.C. 78m or 78o(d));
    (3) Is an investment company, as defined in section 3 of the
Investment Company Act of 1940 (15 U.S.C. 80a-3), or is excluded from
the definition of investment company by section 3(b) or section 3(c) of
that Act (15 U.S.C. 80a-3(b) or 80a-3(c));
    (4) Is not eligible to offer or sell securities in reliance on
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) as a result
of a disqualification as specified in Sec.  227.503(a);
    (5) Has sold securities in reliance on section 4(a)(6) of the
Securities Act (15 U.S.C. 77d(a)(6)) and has not filed with the
Commission and provided to investors, to the extent required, the
ongoing annual reports required by this part during the two years
immediately preceding the filing of the required offering statement; or
    Instruction to paragraph (b)(5). An issuer delinquent in its
ongoing reports can again rely on section 4(a)(6) of the Securities Act
(15 U.S.C. 77d(a)(6)) once it has filed with the Commission and
provided to investors both of the annual reports required during the
two years

immediately preceding the filing of the required offering statement.
    (6) Has no specific business plan or has indicated that its
business plan is to engage in a merger or acquisition with an
unidentified company or companies.
    (c) Issuer. For purposes of Sec.  227.201(r), calculating aggregate
amounts offered and sold in Sec.  227.100(a) and Sec.  227.201(t), and
determining whether an issuer has previously sold securities in Sec.
227.201(t)(3), issuer includes all entities controlled by or under
common control with the issuer and any predecessors of the issuer.
    Instruction to paragraph (c). The term control means the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of the entity, whether through
the ownership of voting securities, by contract or otherwise.
    (d) Investor. For purposes of this part, investor means any
investor or any potential investor, as the context requires.

Subpart B--Requirements for Issuers

Sec.  227.201  Disclosure requirements.

    An issuer offering or selling securities in reliance on section
4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) and in accordance
with section 4A of the Securities Act (15 U.S.C. 77d-1) and this part
must file with the Commission and provide to investors and the relevant
intermediary the following information:
    (a) The name, legal status (including its form of organization,
jurisdiction in which it is organized and date of organization),
physical address and Web site of the issuer;
    (b) The names of the directors and officers (and any persons
occupying a similar status or performing a similar function) of the
issuer, all positions and offices with the issuer held by such persons,
the period of time in which such persons served in the position or
office and their business experience during the past three years,
including:
    (1) Each person's principal occupation and employment, including
whether any officer is employed by another employer; and
    (2) The name and principal business of any corporation or other
organization in which such occupation and employment took place.
    Instruction to paragraph (b). For purposes of this paragraph (b),
the term officer means a president, vice president, secretary,
treasurer or principal financial officer, comptroller or principal
accounting officer, and any person routinely performing similar
functions.
    (c) The name of each person, as of the most recent practicable date
but no earlier than 120 days prior to the date the offering statement
or report is filed, who is a beneficial owner of 20 percent or more of
the issuer's outstanding voting equity securities, calculated on the
basis of voting power;
    (d) A description of the business of the issuer and the anticipated
business plan of the issuer;
    (e) The current number of employees of the issuer;
    (f) A discussion of the material factors that make an investment in
the issuer speculative or risky;
    (g) The target offering amount and the deadline to reach the target
offering amount, including a statement that if the sum of the
investment commitments does not equal or exceed the target offering
amount at the offering deadline, no securities will be sold in the
offering, investment commitments will be cancelled and committed funds
will be returned;
    (h) Whether the issuer will accept investments in excess of the
target offering amount and, if so, the maximum amount that the issuer
will accept and how oversubscriptions will be allocated, such as on a
pro-rata, first come-first served, or other basis;
    (i) A description of the purpose and intended use of the offering
proceeds;
    Instruction to paragraph (i). An issuer must provide a reasonably
detailed description of any intended use of proceeds, such that
investors are provided with enough information to understand how the
offering proceeds will be used. If an issuer has identified a range of
possible uses, the issuer should identify and describe each probable
use and the factors the issuer may consider in allocating proceeds
among the potential uses. If the issuer will accept proceeds in excess
of the target offering amount, the issuer must describe the purpose,
method for allocating oversubscriptions, and intended use of the excess
proceeds with similar specificity.
    (j) A description of the process to complete the transaction or
cancel an investment commitment, including a statement that:
    (1) Investors may cancel an investment commitment until 48 hours
prior to the deadline identified in the issuer's offering materials;
    (2) The intermediary will notify investors when the target offering
amount has been met;
    (3) If an issuer reaches the target offering amount prior to the
deadline identified in its offering materials, it may close the
offering early if it provides notice about the new offering deadline at
least five business days prior to such new offering deadline (absent a
material change that would require an extension of the offering and
reconfirmation of the investment commitment); and
    (4) If an investor does not cancel an investment commitment before
the 48-hour period prior to the offering deadline, the funds will be
released to the issuer upon closing of the offering and the investor
will receive securities in exchange for his or her investment;
    (k) A statement that if an investor does not reconfirm his or her
investment commitment after a material change is made to the offering,
the investor's investment commitment will be cancelled and the
committed funds will be returned;
    (l) The price to the public of the securities or the method for
determining the price, provided that, prior to any sale of securities,
each investor shall be provided in writing the final price and all
required disclosures;
    (m) A description of the ownership and capital structure of the
issuer, including:
    (1) The terms of the securities being offered and each other class
of security of the issuer, including the number of securities being
offered and/or outstanding, whether or not such securities have voting
rights, any limitations on such voting rights, how the terms of the
securities being offered may be modified and a summary of the
differences between such securities and each other class of security of
the issuer, and how the rights of the securities being offered may be
materially limited, diluted or qualified by the rights of any other
class of security of the issuer;
    (2) A description of how the exercise of rights held by the
principal shareholders of the issuer could affect the purchasers of the
securities being offered;
    (3) The name and ownership level of each person, as of the most
recent practicable date but no earlier than 120 days prior to the date
the offering statement or report is filed, who is the beneficial owner
of 20 percent or more of the issuer's outstanding voting equity
securities, calculated on the basis of voting power;
    (4) How the securities being offered are being valued, and examples
of methods for how such securities may be valued by the issuer in the
future, including during subsequent corporate actions;
    (5) The risks to purchasers of the securities relating to minority
ownership in the issuer and the risks associated with corporate actions
including additional issuances of

securities, issuer repurchases of securities, a sale of the issuer or
of assets of the issuer or transactions with related parties; and
    (6) A description of the restrictions on transfer of the
securities, as set forth in Sec.  227.501;
    (n) The name, SEC file number and Central Registration Depository
(CRD) number (as applicable) of the intermediary through which the
offering is being conducted;
    (o) A description of the intermediary's financial interests in the
issuer's transaction and in the issuer, including:
    (1) The amount of compensation to be paid to the intermediary,
whether as a dollar amount or a percentage of the offering amount, or a
good faith estimate if the exact amount is not available at the time of
the filing, for conducting the offering, including the amount of
referral and any other fees associated with the offering, and
    (2) Any other direct or indirect interest in the issuer held by the
intermediary, or any arrangement for the intermediary to acquire such
an interest;
    (p) A description of the material terms of any indebtedness of the
issuer, including the amount, interest rate, maturity date and any
other material terms;
    (q) A description of exempt offerings conducted within the past
three years;
    Instruction to paragraph (q). In providing a description of any
prior exempt offerings, disclose:
    (1) The date of the offering;
    (2) The offering exemption relied upon;
    (3) The type of securities offered; and
    (4) The amount of securities sold and the use of proceeds;
    (r) A description of any transaction since the beginning of the
issuer's last fiscal year, or any currently proposed transaction, to
which the issuer was or is to be a party and the amount involved
exceeds five percent of the aggregate amount of capital raised by the
issuer in reliance on section 4(a)(6) of the Securities Act (15 U.S.C.
77d(a)(6)) during the preceding 12-month period, inclusive of the
amount the issuer seeks to raise in the current offering under section
4(a)(6) of the Securities Act, in which any of the following persons
had or is to have a direct or indirect material interest:
    (1) Any director or officer of the issuer;
    (2) Any person who is, as of the most recent practicable date but
no earlier than 120 days prior to the date the offering statement or
report is filed, the beneficial owner of 20 percent or more of the
issuer's outstanding voting equity securities, calculated on the basis
of voting power;
    (3) If the issuer was incorporated or organized within the past
three years, any promoter of the issuer; or
    (4) Any member of the family of any of the foregoing persons, which
includes a child, stepchild, grandchild, parent, stepparent,
grandparent, spouse or spousal equivalent, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-
in-law, and shall include adoptive relationships. The term spousal
equivalent means a cohabitant occupying a relationship generally
equivalent to that of a spouse.
    Instruction 1 to paragraph (r). For each transaction identified,
disclose the name of the specified person and state his or her
relationship to the issuer, and the nature and, where practicable, the
approximate amount of his or her interest in the transaction. The
amount of such interest shall be computed without regard to the amount
of the profit or loss involved in the transaction. Where it is not
practicable to state the approximate amount of the interest, the
approximate amount involved in the transaction shall be disclosed.
    Instruction 2 to paragraph (r). For purposes of paragraph (r), a
transaction includes, but is not limited to, any financial transaction,
arrangement or relationship (including any indebtedness or guarantee of
indebtedness) or any series of similar transactions, arrangements or
relationships.
    (s) A discussion of the issuer's financial condition, including, to
the extent material, liquidity, capital resources and historical
results of operations;
    Instruction 1 to paragraph (s). The discussion must cover each
period for which financial statements of the issuer are provided. An
issuer also must include a discussion of any material changes or trends
known to management in the financial condition and results of
operations of the issuer subsequent to the period for which financial
statements are provided.
    Instruction 2 to paragraph (s). For issuers with no prior operating
history, the discussion should focus on financial milestones and
operational, liquidity and other challenges. For issuers with an
operating history, the discussion should focus on whether historical
results and cash flows are representative of what investors should
expect in the future. Issuers should take into account the proceeds of
the offering and any other known or pending sources of capital. Issuers
also should discuss how the proceeds from the offering will affect the
issuer's liquidity, whether receiving these funds and any other
additional funds is necessary to the viability of the business, and how
quickly the issuer anticipates using its available cash. In addition,
issuers should describe the other available sources of capital to the
business, such as lines of credit or required contributions by
shareholders.
    Instruction 3 to paragraph (s). References to the issuer in this
paragraph and its instructions refer to the issuer and its
predecessors, if any.
    (t) For offerings that, together with all other amounts sold under
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) within the
preceding 12-month period, have, in the aggregate, the following target
offering amounts:
    (1) $100,000 or less, the amount of total income, taxable income
and total tax, or the equivalent line items, as reported on the federal
income tax returns filed by the issuer for the most recently completed
year (if any), which shall be certified by the principal executive
officer of the issuer to reflect accurately the information reported on
the issuer's federal income tax returns, and financial statements of
the issuer, which shall be certified by the principal executive officer
of the issuer to be true and complete in all material respects. If
financial statements of the issuer are available that have either been
reviewed or audited by a public accountant that is independent of the
issuer, the issuer must provide those financial statements instead and
need not include the information reported on the federal income tax
returns or the certifications of the principal executive officer;
    (2) More than $100,000, but not more than $500,000, financial
statements of the issuer reviewed by a public accountant that is
independent of the issuer. If financial statements of the issuer are
available that have been audited by a public accountant that is
independent of the issuer, the issuer must provide those financial
statements instead and need not include the reviewed financial
statements; and
    (3) More than $500,000, financial statements of the issuer audited
by a public accountant that is independent of the issuer; provided,
however, that for issuers that have not previously sold securities in
reliance on section 4(a)(6) of the Securities Act (15 U.S.C.
77d(a)(6)), offerings that have a target offering amount of more than
$500,000, but not more than $1,000,000, financial statements of the
issuer reviewed by a public accountant that is independent of the
issuer. If financial statements of the issuer are available that have
been

audited by a public accountant that is independent of the issuer, the
issuer must provide those financial statements instead and need not
include the reviewed financial statements.
    Instruction 1 to paragraph (t). To determine the financial
statements required under this paragraph (t), an issuer must aggregate
amounts sold in reliance on section 4(a)(6) of the Securities Act (15
U.S.C. 77d(a)(6)) within the preceding 12-month period and the offering
amount in the offering for which disclosure is being provided. If the
issuer will accept proceeds in excess of the target offering amount,
the issuer must include the maximum offering amount that the issuer
will accept in the calculation to determine the financial statements
required under this paragraph (t).
    Instruction 2 to paragraph (t). An issuer may voluntarily meet the
requirements of this paragraph (t) for a higher aggregate target
offering amount.
    Instruction 3 to paragraph (t). The financial statements must be
prepared in accordance with U.S. generally accepted accounting
principles and include balance sheets, statements of comprehensive
income, statements of cash flows, statements of changes in
stockholders' equity and notes to the financial statements. If the
financial statements are not audited, they must be labeled as
``unaudited.'' The financial statements must cover the two most
recently completed fiscal years or the period(s) since inception, if
shorter.
    Instruction 4 to paragraph (t). For an offering conducted in the
first 120 days of a fiscal year, the financial statements provided may
be for the two fiscal years prior to the issuer's most recently
completed fiscal year; however, financial statements for the two most
recently completed fiscal years must be provided if they are otherwise
available. If more than 120 days have passed since the end of the
issuer's most recently completed fiscal year, the financial statements
provided must be for the issuer's two most recently completed fiscal
years. If the 120th day falls on a Saturday, Sunday, or holiday, the
next business day shall be considered the 120th day for purposes of
determining the age of the financial statements.
    Instruction 5 to paragraph (t). An issuer may elect to delay
complying with any new or revised financial accounting standard that
applies to companies that are not issuers (as defined under section
2(a) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201(a)) until the
date that such companies are required to comply with such new or
revised accounting standard. Issuers electing this accommodation must
disclose it at the time the issuer files its offering statement and
apply the election to all standards. Issuers electing not to use this
accommodation must forgo this accommodation for all financial
accounting standards and may not elect to rely on this accommodation in
any future filings.
    Instruction 6 to paragraph (t). An issuer required to provide
information from a tax return under paragraph (t)(1) of this section
before filing a tax return with the U.S. Internal Revenue Service for
the most recently completed fiscal year may provide information from
its tax return for the prior year (if any), provided that the issuer
provides information from the tax return for the most recently
completed fiscal year when it is filed with the U.S. Internal Revenue
Service (if the tax return is filed during the offering period). An
issuer that requested an extension from the U.S. Internal Revenue
Service would not be required to provide information from the tax
return until the date the return is filed, if filed during the offering
period. If an issuer has not yet filed a tax return and is not required
to file a tax return before the end of the offering period, then the
tax return information does not need to be provided.
    Instruction 7 to paragraph (t). An issuer providing financial
statements that are not audited or reviewed and tax information as
specified under paragraph (t)(1) of this section must have its
principal executive officer provide the following certification:
    I, [identify the certifying individual], certify that:
    (1) the financial statements of [identify the issuer] included in
this Form are true and complete in all material respects; and
    (2) the tax return information of [identify the issuer] included in
this Form reflects accurately the information reported on the tax
return for [identify the issuer] filed for the fiscal year ended [date
of most recent tax return].
    [Signature and title].
    Instruction 8 to paragraph (t). Financial statement reviews shall
be conducted in accordance with the Statements on Standards for
Accounting and Review Services issued by the Accounting and Review
Services Committee of the American Institute of Certified Public
Accountants. A signed review report must accompany the reviewed
financial statements, and an issuer must notify the public accountant
of the issuer's intended use of the review report in the offering. An
issuer will not be in compliance with the requirement to provide
reviewed financial statements if the review report includes
modifications.
    Instruction 9 to paragraph (t). Financial statement audits shall be
conducted in accordance with either auditing standards issued by the
American Institute of Certified Public Accountants (referred to as U.S.
Generally Accepted Auditing Standards) or the standards of the Public
Company Accounting Oversight Board. A signed audit report must
accompany audited financial statements, and an issuer must notify the
public accountant of the issuer's intended use of the audit report in
the offering. An issuer will not be in compliance with the requirement
to provide audited financial statements if the audit report includes a
qualified opinion, an adverse opinion, or a disclaimer of opinion.
    Instruction 10 to paragraph (t). To qualify as a public accountant
that is independent of the issuer for purposes of this part, the
accountant must satisfy the independence standards of either:
    (i) 17 CFR 210.2-01 of this chapter, or
    (ii) The American Institute of Certified Public Accountants. The
public accountant that audits or reviews the financial statements
provided by an issuer must be:
    (A) Duly registered and in good standing as a certified public
accountant under the laws of the place of his or her residence or
principal office; or
    (B) In good standing and entitled to practice as a public
accountant under the laws of his or her place of residence or principal
office.
    Instruction 11 to paragraph (t). Except as set forth in Sec.
227.100(c), references to the issuer in this paragraph (t) and its
instructions (2) through (10) refer to the issuer and its predecessors,
if any.
    (u) Any matters that would have triggered disqualification under
Sec.  227.503(a) but occurred before May 16, 2016. The failure to
provide such disclosure shall not prevent an issuer from continuing to
rely on the exemption provided by section 4(a)(6) of the Securities Act
(15 U.S.C. 77d(a)(6)) if the issuer establishes that it did not know
and, in the exercise of reasonable care, could not have known of the
existence of the undisclosed matter or matters;
    Instruction to paragraph (u). An issuer will not be able to
establish that it could not have known of a disqualification unless it
has made factual inquiry into whether any disqualifications exist. The
nature and scope of the factual inquiry will vary based on the facts
and circumstances concerning, among other things, the issuer and the
other offering participants.

    (v) Updates regarding the progress of the issuer in meeting the
target offering amount, to be provided in accordance with Sec.
227.203;
    (w) Where on the issuer's Web site investors will be able to find
the issuer's annual report, and the date by which such report will be
available on the issuer's Web site;
    (x) Whether the issuer or any of its predecessors previously failed
to comply with the ongoing reporting requirements of Sec.  227.202; and
    (y) Any material information necessary in order to make the
statements made, in light of the circumstances under which they were
made, not misleading.
    Instruction to Sec.  227.201. If disclosure provided pursuant to
any paragraph of this section also satisfies the requirements of one or
more other paragraphs of this section, it is not necessary to repeat
the disclosure. Instead of repeating information, an issuer may include
a cross-reference to disclosure contained elsewhere in the offering
statement or report, including to information in the financial
statements.

Sec.  227.202  Ongoing reporting requirements.

    (a) An issuer that has offered and sold securities in reliance on
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) and in
accordance with section 4A of the Securities Act (15 U.S.C. 77d-1) and
this part must file with the Commission and post on the issuer's Web
site an annual report along with the financial statements of the issuer
certified by the principal executive officer of the issuer to be true
and complete in all material respects and a description of the
financial condition of the issuer as described in Sec.  227.201(s). If,
however, an issuer has available financial statements that have either
been reviewed or audited by a public accountant that is independent of
the issuer, those financial statements must be provided and the
certification by the principal executive officer will not be required.
The annual report also must include the disclosure required by
paragraphs (a), (b), (c), (d), (e), (f), (m), (p), (q), (r), and (x) of
Sec.  227.201. The report must be filed in accordance with the
requirements of Sec.  227.203 and Form C (Sec.  239.900 of this
chapter) and no later than 120 days after the end of the fiscal year
covered by the report.
    Instruction 1 to paragraph (a). Instructions (3), (8), (9), (10),
and (11) to paragraph (t) of Sec.  227.201 shall apply for purposes of
this section.
    Instruction 2 to paragraph (a). An issuer providing financial
statements that are not audited or reviewed must have its principal
executive officer provide the following certification:
    I, [identify the certifying individual], certify that the financial
statements of [identify the issuer] included in this Form are true and
complete in all material respects.
    [Signature and title].
    (b) An issuer must continue to comply with the ongoing reporting
requirements until one of the following occurs:
    (1) The issuer is required to file reports under section 13(a) or
section 15(d) of the Exchange Act (15 U.S.C. 78m(a) or 78o(d));
    (2) The issuer has filed, since its most recent sale of securities
pursuant to this part, at least one annual report pursuant to this
section and has fewer than 300 holders of record;
    (3) The issuer has filed, since its most recent sale of securities
pursuant to this part, the annual reports required pursuant to this
section for at least the three most recent years and has total assets
that do not exceed $10,000,000;
    (4) The issuer or another party repurchases all of the securities
issued in reliance on section 4(a)(6) of the Securities Act (15 U.S.C.
77d(a)(6)), including any payment in full of debt securities or any
complete redemption of redeemable securities; or
    (5) The issuer liquidates or dissolves its business in accordance
with state law.

Sec.  227.203  Filing requirements and form.

    (a) Form C--Offering statement and amendments (Sec.  239.900 of
this chapter).
    (1) Offering statement. An issuer offering or selling securities in
reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6))
and in accordance with section 4A of the Securities Act (15 U.S.C. 77d-
1) and this part must file with the Commission and provide to investors
and the relevant intermediary a Form C: Offering Statement (Form C)
(Sec.  239.900 of this chapter) prior to the commencement of the
offering of securities. The Form C must include the information
required by Sec.  227.201.
    (2) Amendments to offering statement. An issuer must file with the
Commission and provide to investors and the relevant intermediary an
amendment to the offering statement filed on Form C (Sec.  239.900 of
this chapter) to disclose any material changes, additions or updates to
information that it provides to investors through the intermediary's
platform, for any offering that has not yet been completed or
terminated. The amendment must be filed on Form C: Amendment (Form C/A)
(Sec.  239.900 of this chapter), and if the amendment reflects material
changes, additions or updates, the issuer shall check the box
indicating that investors must reconfirm an investment commitment
within five business days or the investor's commitment will be
considered cancelled.
    (3) Progress updates. (i) An issuer must file with the Commission
and provide to investors and the relevant intermediary a Form C:
Progress Update (Form C-U) (Sec.  239.900 of this chapter) to disclose
its progress in meeting the target offering amount no later than five
business days after each of the dates when the issuer reaches 50
percent and 100 percent of the target offering amount.
    (ii) If the issuer will accept proceeds in excess of the target
offering amount, the issuer must file with the Commission and provide
to investors and the relevant intermediary, no later than five business
days after the offering deadline, a final Form C-U (Sec.  239.900 of
this chapter) to disclose the total amount of securities sold in the
offering.
    (iii) The requirements of paragraphs (a)(3)(i) and (ii) of this
section shall not apply to an issuer if the relevant intermediary makes
publicly available on the intermediary's platform frequent updates
regarding the progress of the issuer in meeting the target offering
amount; however, the issuer must still file a Form C-U (Sec.  239.900
of this chapter) to disclose the total amount of securities sold in the
offering no later than five business days after the offering deadline.
    Instruction to paragraph (a)(3). If multiple Forms C-U (Sec.
239.900 of this chapter) are triggered within the same five business
day period, the issuer may consolidate such progress updates into one
Form C-U, so long as the Form C-U discloses the most recent threshold
that was met and the Form C-U is filed with the Commission and provided
to investors and the relevant intermediary by the day on which the
first progress update is due.
    Instruction 1 to paragraph (a). An issuer would satisfy the
requirement to provide to the relevant intermediary the information
required by this paragraph (a) if it provides to the relevant
intermediary a copy of the disclosures filed with the Commission.
    Instruction 2 to paragraph (a). An issuer would satisfy the
requirement to provide to investors the information required by this
paragraph (a) if the issuer refers investors to the information on the
intermediary's platform by means of a posting on the issuer's Web site
or by email.
    (b) Form C: Annual report and termination of reporting (Sec.
239.900 of this chapter). (1) Annual reports. An

issuer that has sold securities in reliance on section 4(a)(6) of the
Securities Act (15 U.S.C. 77d(a)(6)) and in accordance with section 4A
of the Securities Act (15 U.S.C. 77d-1) and this part must file an
annual report on Form C: Annual Report (Form C-AR) (Sec.  239.900 of
this chapter) with the Commission no later than 120 days after the end
of the fiscal year covered by the report. The annual report shall
include the information required by Sec.  227.202(a).
    (2) Amendments to annual report. An issuer must file with the
Commission an amendment to the annual report filed on Form C: Annual
Report (Form C-AR) (Sec.  239.900 of this chapter) to make a material
change to the previously filed annual report as soon as practicable
after discovery of the need for the material change. The amendment must
be filed on Form C: Amendment to Annual Report (Form C-AR/A) (Sec.
239.900 of this chapter).
    (3) Termination of reporting. An issuer eligible to terminate its
obligation to file annual reports with the Commission pursuant to Sec.
227.202(b) must file with the Commission, within five business days
from the date on which the issuer becomes eligible to terminate its
reporting obligation, Form C: Termination of Reporting (Form C-TR)
(Sec.  239.900 of this chapter) to advise investors that the issuer
will cease reporting pursuant to this part.

Sec.  227.204  Advertising.

    (a) An issuer may not, directly or indirectly, advertise the terms
of an offering made in reliance on section 4(a)(6) of the Securities
Act (15 U.S.C. 77d(a)(6)), except for notices that meet the
requirements of paragraph (b) of this section.
    Instruction to paragraph (a). For purposes of this paragraph (a),
issuer includes persons acting on behalf of the issuer.
    (b) A notice may advertise any of the terms of an issuer's offering
made in reliance on section 4(a)(6) of the Securities Act (15 U.S.C.
77d(a)(6)) if it directs investors to the intermediary's platform and
includes no more than the following information:
    (1) A statement that the issuer is conducting an offering pursuant
to section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)), the
name of the intermediary through which the offering is being conducted
and a link directing the potential investor to the intermediary's
platform;
    (2) The terms of the offering; and
    (3) Factual information about the legal identity and business
location of the issuer, limited to the name of the issuer of the
security, the address, phone number and Web site of the issuer, the
email address of a representative of the issuer and a brief description
of the business of the issuer.
    (c) Notwithstanding the prohibition on advertising any of the terms
of the offering, an issuer, and persons acting on behalf of the issuer,
may communicate with investors and potential investors about the terms
of the offering through communication channels provided by the
intermediary on the intermediary's platform, provided that an issuer
identifies itself as the issuer in all communications. Persons acting
on behalf of the issuer must identify their affiliation with the issuer
in all communications on the intermediary's platform.
    Instruction to Sec.  227.204. For purposes of this section, terms
of the offering means the amount of securities offered, the nature of
the securities, the price of the securities and the closing date of the
offering period.

Sec.  227.205  Promoter compensation.

    (a) An issuer, or person acting on behalf of the issuer, shall be
permitted to compensate or commit to compensate, directly or
indirectly, any person to promote the issuer's offerings made in
reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6))
through communication channels provided by an intermediary on the
intermediary's platform, but only if the issuer or person acting on
behalf of the issuer, takes reasonable steps to ensure that the person
promoting the offering clearly discloses the receipt, past or
prospective, of such compensation with any such communication.
    Instruction to paragraph (a). The disclosure required by this
paragraph is required, with each communication, for persons engaging in
promotional activities on behalf of the issuer through the
communication channels provided by the intermediary, regardless of
whether or not the compensation they receive is specifically for the
promotional activities. This includes persons hired specifically to
promote the offering as well as to persons who are otherwise employed
by the issuer or who undertake promotional activities on behalf of the
issuer.
    (b) Other than as set forth in paragraph (a) of this section, an
issuer or person acting on behalf of the issuer shall not compensate or
commit to compensate, directly or indirectly, any person to promote the
issuer's offerings made in reliance on section 4(a)(6) of the
Securities Act (15 U.S.C. 77d(a)(6)), unless such promotion is limited
to notices permitted by, and in compliance with, Sec.  227.204.

Subpart C--Requirements for Intermediaries

Sec.  227.300  Intermediaries.

    (a) Requirements. A person acting as an intermediary in a
transaction involving the offer or sale of securities in reliance on
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) must:
    (1) Be registered with the Commission as a broker under section
15(b) of the Exchange Act (15 U.S.C. 78o(b)) or as a funding portal in
accordance with the requirements of Sec.  227.400; and
    (2) Be a member a national securities association registered under
section 15A of the Exchange Act (15 U.S.C. 78o-3).
    (b) Financial interests. Any director, officer or partner of an
intermediary, or any person occupying a similar status or performing a
similar function, may not have a financial interest in an issuer that
is offering or selling securities in reliance on section 4(a)(6) of the
Securities Act (15 U.S.C. 77d(a)(6)) through the intermediary's
platform, or receive a financial interest in an issuer as compensation
for the services provided to or for the benefit of the issuer in
connection with the offer or sale of such securities. An intermediary
may not have a financial interest in an issuer that is offering or
selling securities in reliance on section 4(a)(6) of the Securities Act
(15 U.S.C. 77d(a)(6)) through the intermediary's platform unless:
    (1) The intermediary receives the financial interest from the
issuer as compensation for the services provided to, or for the benefit
of, the issuer in connection with the offer or sale of the securities
being offered or sold in reliance on section 4(a)(6) of the Securities
Act (15 U.S.C. 77d(a)(6)) through the intermediary's platform; and
    (2) the financial interest consists of securities of the same class
and having the same terms, conditions and rights as the securities
being offered or sold in reliance on section 4(a)(6) of the Securities
Act (15 U.S.C. 77d(a)(6)) through the intermediary's platform. For
purposes of this paragraph, a financial interest in an issuer means a
direct or indirect ownership of, or economic interest in, any class of
the issuer's securities.
    (c) Definitions. For purposes of this part:
    (1) Associated person of a funding portal or person associated with
a funding portal means any partner, officer, director or manager of a
funding portal (or any person occupying a similar status or performing
similar functions), any person directly or

indirectly controlling or controlled by such funding portal, or any
employee of a funding portal, except that any person associated with a
funding portal whose functions are solely clerical or ministerial shall
not be included in the meaning of such term for purposes of section
15(b) of the Exchange Act (15 U.S.C. 78o(b)) (other than paragraphs (4)
and (6) of section 15(b) of the Exchange Act).
    (2) Funding portal means a broker acting as an intermediary in a
transaction involving the offer or sale of securities in reliance on
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)), that does
not:
    (i) Offer investment advice or recommendations;
    (ii) Solicit purchases, sales or offers to buy the securities
displayed on its platform;
    (iii) Compensate employees, agents, or other persons for such
solicitation or based on the sale of securities displayed or referenced
on its platform; or
    (iv) Hold, manage, possess, or otherwise handle investor funds or
securities.
    (3) Intermediary means a broker registered under section 15(b) of
the Exchange Act (15 U.S.C. 78o(b)) or a funding portal registered
under Sec.  227.400 and includes, where relevant, an associated person
of the registered broker or registered funding portal.
    (4) Platform means a program or application accessible via the
Internet or other similar electronic communication medium through which
a registered broker or a registered funding portal acts as an
intermediary in a transaction involving the offer or sale of securities
in reliance on section 4(a)(6) of the Securities Act (15 U.S.C.
77d(a)(6)).
    Instruction to paragraph (c)(4). An intermediary through which a
crowdfunding transaction is conducted may engage in back office or
other administrative functions other than on the intermediary's
platform.

Sec.  227.301  Measures to reduce risk of fraud.

    An intermediary in a transaction involving the offer or sale of
securities in reliance on section 4(a)(6) of the Securities Act (15
U.S.C. 77d(a)(6)) must:
    (a) Have a reasonable basis for believing that an issuer seeking to
offer and sell securities in reliance on section 4(a)(6) of the
Securities Act (15 U.S.C. 77d(a)(6)) through the intermediary's
platform complies with the requirements in section 4A(b) of the Act (15
U.S.C. 77d-1(b)) and the related requirements in this part. In
satisfying this requirement, an intermediary may rely on the
representations of the issuer concerning compliance with these
requirements unless the intermediary has reason to question the
reliability of those representations;
    (b) Have a reasonable basis for believing that the issuer has
established means to keep accurate records of the holders of the
securities it would offer and sell through the intermediary's platform,
provided that an intermediary may rely on the representations of the
issuer concerning its means of recordkeeping unless the intermediary
has reason to question the reliability of those representations. An
intermediary will be deemed to have satisfied this requirement if the
issuer has engaged the services of a transfer agent that is registered
under Section 17A of the Exchange Act (15 U.S.C. 78q-1(c)).
    (c) Deny access to its platform to an issuer if the intermediary:
    (1) Has a reasonable basis for believing that the issuer or any of
its officers, directors (or any person occupying a similar status or
performing a similar function) or beneficial owners of 20 percent or
more of the issuer's outstanding voting equity securities, calculated
on the basis of voting power, is subject to a disqualification under
Sec.  227.503. In satisfying this requirement, an intermediary must, at
a minimum, conduct a background and securities enforcement regulatory
history check on each issuer whose securities are to be offered by the
intermediary and on each officer, director or beneficial owner of 20
percent or more of the issuer's outstanding voting equity securities,
calculated on the basis of voting power.
    (2) Has a reasonable basis for believing that the issuer or the
offering presents the potential for fraud or otherwise raises concerns
about investor protection. In satisfying this requirement, an
intermediary must deny access if it reasonably believes that it is
unable to adequately or effectively assess the risk of fraud of the
issuer or its potential offering. In addition, if an intermediary
becomes aware of information after it has granted access that causes it
to reasonably believe that the issuer or the offering presents the
potential for fraud or otherwise raises concerns about investor
protection, the intermediary must promptly remove the offering from its
platform, cancel the offering, and return (or, for funding portals,
direct the return of) any funds that have been committed by investors
in the offering.

Sec.  227.302  Account opening.

    (a) Accounts and electronic delivery.
    (1) No intermediary or associated person of an intermediary may
accept an investment commitment in a transaction involving the offer or
sale of securities in reliance on section 4(a)(6) of the Securities Act
(15 U.S.C. 77d(a)(6)) until the investor has opened an account with the
intermediary and the intermediary has obtained from the investor
consent to electronic delivery of materials.
    (2) An intermediary must provide all information that is required
to be provided by the intermediary under subpart C of this part
(Sec. Sec.  227.300 through 227.305), including, but not limited to,
educational materials, notices and confirmations, through electronic
means. Unless otherwise indicated in the relevant rule of subpart C of
this part, in satisfying this requirement, an intermediary must provide
the information through an electronic message that contains the
information, through an electronic message that includes a specific
link to the information as posted on intermediary's platform, or
through an electronic message that provides notice of what the
information is and that it is located on the intermediary's platform or
on the issuer's Web site. Electronic messages include, but are not
limited to, email, social media messages, instant messages or other
electronic media messages.
    (b) Educational materials. (1) In connection with establishing an
account for an investor, an intermediary must deliver educational
materials to such investor that explain in plain language and are
otherwise designed to communicate effectively and accurately:
    (i) The process for the offer, purchase and issuance of securities
through the intermediary and the risks associated with purchasing
securities offered and sold in reliance on section 4(a)(6) of the
Securities Act (15 U.S.C. 77d(a)(6));
    (ii) The types of securities offered and sold in reliance on
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) available
for purchase on the intermediary's platform and the risks associated
with each type of security, including the risk of having limited voting
power as a result of dilution;
    (iii) The restrictions on the resale of a security offered and sold
in reliance on section 4(a)(6) of the Securities Act (15 U.S.C.
77d(a)(6));
    (iv) The types of information that an issuer is required to provide
under Sec.  227.202, the frequency of the delivery of that information
and the possibility that those obligations may terminate in the future;
    (v) The limitations on the amounts an investor may invest pursuant
to Sec.  227.100(a)(2);

    (vi) The limitations on an investor's right to cancel an investment
commitment and the circumstances in which an investment commitment may
be cancelled by the issuer;
    (vii) The need for the investor to consider whether investing in a
security offered and sold in reliance on section 4(a)(6) of the
Securities Act (15 U.S.C. 77d(a)(6)) is appropriate for that investor;
    (viii) That following completion of an offering conducted through
the intermediary, there may or may not be any ongoing relationship
between the issuer and intermediary; and
    (ix) That under certain circumstances an issuer may cease to
publish annual reports and, therefore, an investor may not continually
have current financial information about the issuer.
    (2) An intermediary must make the most current version of its
educational material available on its platform at all times and, if at
any time, the intermediary makes a material revision to its educational
materials, it must make the revised educational materials available to
all investors before accepting any additional investment commitments or
effecting any further transactions in securities offered and sold in
reliance on section 4(a)(6) of the Securities Act (15 U.S.C.
77d(a)(6)).
    (c) Promoters. In connection with establishing an account for an
investor, an intermediary must inform the investor that any person who
promotes an issuer's offering for compensation, whether past or
prospective, or who is a founder or an employee of an issuer that
engages in promotional activities on behalf of the issuer on the
intermediary's platform, must clearly disclose in all communications on
the intermediary's platform, respectively, the receipt of the
compensation and that he or she is engaging in promotional activities
on behalf of the issuer.
    (d) Compensation disclosure. When establishing an account for an
investor, an intermediary must clearly disclose the manner in which the
intermediary is compensated in connection with offerings and sales of
securities in reliance on section 4(a)(6) of the Securities Act (15
U.S.C. 77d(a)(6)).

Sec.  227.303  Requirements with respect to transactions.

    (a) Issuer information. An intermediary in a transaction involving
the offer or sale of securities in reliance on section 4(a)(6) of the
Securities Act (15 U.S.C. 77d(a)(6)) must make available to the
Commission and to investors any information required to be provided by
the issuer of the securities under Sec. Sec.  227.201 and 227.203(a).
    (1) This information must be made publicly available on the
intermediary's platform, in a manner that reasonably permits a person
accessing the platform to save, download, or otherwise store the
information;
    (2) This information must be made publicly available on the
intermediary's platform for a minimum of 21 days before any securities
are sold in the offering, during which time the intermediary may accept
investment commitments;
    (3) This information, including any additional information provided
by the issuer, must remain publicly available on the intermediary's
platform until the offer and sale of securities in reliance on section
4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) is completed or
cancelled; and
    (4) An intermediary may not require any person to establish an
account with the intermediary to access this information.
    (b) Investor qualification. Each time before accepting any
investment commitment (including any additional investment commitment
from the same person), an intermediary must:
    (1) Have a reasonable basis for believing that the investor
satisfies the investment limitations established by section 4(a)(6)(B)
of the Act (15 U.S.C. 77d(a)(6)(B)) and this part. An intermediary may
rely on an investor's representations concerning compliance with the
investment limitation requirements concerning the investor's annual
income, net worth, and the amount of the investor's other investments
made pursuant to section 4(a)(6) of the Securities Act (15 U.S.C.
77d(a)(6)) unless the intermediary has reason to question the
reliability of the representation.
    (2) Obtain from the investor:
    (i) A representation that the investor has reviewed the
intermediary's educational materials delivered pursuant to Sec.
227.302(b), understands that the entire amount of his or her investment
may be lost, and is in a financial condition to bear the loss of the
investment; and
    (ii) A questionnaire completed by the investor demonstrating the
investor's understanding that:
    (A) There are restrictions on the investor's ability to cancel an
investment commitment and obtain a return of his or her investment;
    (B) It may be difficult for the investor to resell securities
acquired in reliance on section 4(a)(6) of the Securities Act (15
U.S.C. 77d(a)(6)); and
    (C) Investing in securities offered and sold in reliance on section
4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) involves risk, and
the investor should not invest any funds in an offering made in
reliance on section 4(a)(6) of the Securities Act unless he or she can
afford to lose the entire amount of his or her investment.
    (c) Communication channels. An intermediary must provide on its
platform communication channels by which persons can communicate with
one another and with representatives of the issuer about offerings made
available on the intermediary's platform, provided:
    (1) If the intermediary is a funding portal, it does not
participate in these communications other than to establish guidelines
for communication and remove abusive or potentially fraudulent
communications;
    (2) The intermediary permits public access to view the discussions
made in the communication channels;
    (3) The intermediary restricts posting of comments in the
communication channels to those persons who have opened an account with
the intermediary on its platform; and
    (4) The intermediary requires that any person posting a comment in
the communication channels clearly and prominently disclose with each
posting whether he or she is a founder or an employee of an issuer
engaging in promotional activities on behalf of the issuer, or is
otherwise compensated, whether in the past or prospectively, to promote
the issuer's offering.
    (d) Notice of investment commitment. An intermediary must promptly,
upon receipt of an investment commitment from an investor, give or send
to the investor a notification disclosing:
    (1) The dollar amount of the investment commitment;
    (2) The price of the securities, if known;
    (3) The name of the issuer; and
    (4) The date and time by which the investor may cancel the
investment commitment.
    (e) Maintenance and transmission of funds. (1) An intermediary that
is a registered broker must comply with the requirements of 17 CFR
240.15c2-4.
    (2) An intermediary that is a funding portal must direct investors
to transmit the money or other consideration directly to a qualified
third party that has agreed in writing to hold the funds for the
benefit of, and to promptly transmit or return the funds to, the
persons entitled thereto in accordance with paragraph (e)(3) of this
section. For purposes of this subpart C (Sec. Sec.  227.300 through
227.305), a qualified third party means a:
    (i) Registered broker or dealer that carries customer or broker or
dealer

accounts and holds funds or securities for those persons; or
    (ii) Bank or credit union (where such credit union is insured by
National Credit Union Administration) that has agreed in writing either
to hold the funds in escrow for the persons who have the beneficial
interests therein and to transmit or return such funds directly to the
persons entitled thereto when so directed by the funding portal as
described in paragraph (e)(3) of this section, or to maintain a bank or
credit union account (or accounts) for the exclusive benefit of
investors and the issuer.
    (3) A funding portal that is an intermediary in a transaction
involving the offer or sale of securities in reliance on section
4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) shall promptly
direct the qualified third party to:
    (i) Transmit funds from the qualified third party to the issuer
when the aggregate amount of investment commitments from all investors
is equal to or greater than the target amount of the offering and the
cancellation period as set forth in Sec.  227.304 has elapsed, provided
that in no event may the funding portal direct this transmission of
funds earlier than 21 days after the date on which the intermediary
makes publicly available on its platform the information required to be
provided by the issuer under Sec. Sec.  227.201 and 227.203(a);
    (ii) Return funds to an investor when an investment commitment has
been cancelled in accordance with Sec.  227.304 (including for failure
to obtain effective reconfirmation as required under Sec.  227.304(c));
and
    (iii) Return funds to investors when an issuer does not complete
the offering.
    (f) Confirmation of transaction. (1) An intermediary must, at or
before the completion of a transaction in a security in reliance on
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)), give or
send to each investor a notification disclosing:
    (i) The date of the transaction;
    (ii) The type of security that the investor is purchasing;
    (iii) The identity, price, and number of securities purchased by
the investor, as well as the number of securities sold by the issuer in
the transaction and the price(s) at which the securities were sold;
    (iv) If a debt security, the interest rate and the yield to
maturity calculated from the price paid and the maturity date;
    (v) If a callable security, the first date that the security can be
called by the issuer; and
    (vi) The source, form and amount of any remuneration received or to
be received by the intermediary in connection with the transaction,
including any remuneration received or to be received by the
intermediary from persons other than the issuer.
    (2) An intermediary satisfying the requirements of paragraph (f)(1)
of this section is exempt from the requirements of Sec.  240.10b-10 of
this chapter with respect to a transaction in a security offered and
sold in reliance on section 4(a)(6) of the Securities Act (15 U.S.C.
77d(a)(6)).

Sec.  227.304  Completion of offerings, cancellations and
reconfirmations.

    (a) Generally. An investor may cancel an investment commitment for
any reason until 48 hours prior to the deadline identified in the
issuer's offering materials. During the 48 hours prior to such
deadline, an investment commitment may not be cancelled except as
provided in paragraph (c) of this section.
    (b) Early completion of offering. If an issuer reaches the target
offering amount prior to the deadline identified in its offering
materials pursuant to Sec.  227.201(g), the issuer may close the
offering on a date earlier than the deadline identified in its offering
materials pursuant to Sec.  227.201(g), provided that:
    (1) The offering remains open for a minimum of 21 days pursuant to
Sec.  227.303(a);
    (2) The intermediary provides notice to any potential investors,
and gives or sends notice to investors that have made investment
commitments in the offering, of:
    (i) The new, anticipated deadline of the offering;
    (ii) The right of investors to cancel investment commitments for
any reason until 48 hours prior to the new offering deadline; and
    (iii) Whether the issuer will continue to accept investment
commitments during the 48-hour period prior to the new offering
deadline.
    (3) The new offering deadline is scheduled for and occurs at least
five business days after the notice required in paragraph (b)(2) of
this section is provided; and
    (4) At the time of the new offering deadline, the issuer continues
to meet or exceed the target offering amount.
    (c) Cancellations and reconfirmations based on material changes.
(1) If there is a material change to the terms of an offering or to the
information provided by the issuer, the intermediary must give or send
to any investor who has made an investment commitment notice of the
material change and that the investor's investment commitment will be
cancelled unless the investor reconfirms his or her investment
commitment within five business days of receipt of the notice. If the
investor fails to reconfirm his or her investment within those five
business days, the intermediary within five business days thereafter
must:
    (i) Give or send the investor a notification disclosing that the
commitment was cancelled, the reason for the cancellation and the
refund amount that the investor is expected to receive; and
    (ii) Direct the refund of investor funds.
    (2) If material changes to the offering or to the information
provided by the issuer regarding the offering occur within five
business days of the maximum number of days that an offering is to
remain open, the offering must be extended to allow for a period of
five business days for the investor to reconfirm his or her investment.
    (d) Return of funds if offering is not completed. If an issuer does
not complete an offering, an intermediary must within five business
days:
    (1) Give or send each investor a notification of the cancellation,
disclosing the reason for the cancellation, and the refund amount that
the investor is expected to receive;
    (2) Direct the refund of investor funds; and
    (3) Prevent investors from making investment commitments with
respect to that offering on its platform.

Sec.  227.305  Payments to third parties.

    (a) Prohibition on payments for personally identifiable
information. An intermediary may not compensate any person for
providing the intermediary with the personally identifiable information
of any investor or potential investor in securities offered and sold in
reliance on section 4(a)(6) of the Securities Act (15 U.S.C.
77d(a)(6)).
    (b) For purposes of this rule, personally identifiable information
means information that can be used to distinguish or trace an
individual's identity, either alone or when combined with other
personal or identifying information that is linked or linkable to a
specific individual.

Subpart D--Funding Portal Regulation

Sec.  227.400  Registration of funding portals.

    (a) Registration. A funding portal must register with the
Commission, by filing a complete Form Funding Portal (Sec.  249.2000 of
this chapter) in accordance with the instructions on the

form, and become a member of a national securities association
registered under section 15A of the Exchange Act (15 U.S.C. 78o-3). The
registration will be effective the later of:
    (1) Thirty calendar days after the date that the registration is
received by the Commission; or
    (2) The date the funding portal is approved for membership by a
national securities association registered under section 15A of the
Exchange Act (15 U.S.C. 78o-3).
    (b) Amendments to registration. A funding portal must file an
amendment to Form Funding Portal (Sec.  249.2000 of this chapter)
within 30 days of any of the information previously submitted on Form
Funding Portal becoming inaccurate for any reason.
    (c) Successor registration. (1) If a funding portal succeeds to and
continues the business of a registered funding portal, the registration
of the predecessor will remain effective as the registration of the
successor if the successor, within 30 days after such succession, files
a registration on Form Funding Portal (Sec.  249.2000 of this chapter)
and the predecessor files a withdrawal on Form Funding Portal;
provided, however, that the registration of the predecessor funding
portal will be deemed withdrawn 45 days after registration on Form
Funding Portal is filed by the successor.
    (2) Notwithstanding paragraph (c)(1) of this section, if a funding
portal succeeds to and continues the business of a registered funding
portal and the succession is based solely on a change of the
predecessor's date or state of incorporation, form of organization, or
composition of a partnership, the successor may, within 30 days after
the succession, amend the registration of the predecessor on Form
Funding Portal (Sec.  249.2000 of this chapter) to reflect these
changes.
    (d) Withdrawal. A funding portal must promptly file a withdrawal of
registration on Form Funding Portal (Sec.  249.2000 of this chapter) in
accordance with the instructions on the form upon ceasing to operate as
a funding portal. Withdrawal will be effective on the later of 30 days
after receipt by the Commission (after the funding portal is no longer
operational), or within such longer period of time as to which the
funding portal consents or which the Commission by order may determine
as necessary or appropriate in the public interest or for the
protection of investors.
    (e) Applications and reports. The applications and reports provided
for in this section shall be considered filed when a complete Form
Funding Portal (Sec.  249.2000 of this chapter) is submitted with the
Commission. Duplicate originals of the applications and reports
provided for in this section must be filed with surveillance personnel
designated by any registered national securities association of which
the funding portal is a member.
    (f) Nonresident funding portals. Registration pursuant to this
section by a nonresident funding portal shall be conditioned upon there
being an information sharing arrangement in place between the
Commission and the competent regulator in the jurisdiction under the
laws of which the nonresident funding portal is organized or where it
has its principal place of business, that is applicable to the
nonresident funding portal.
    (1) Definition. For purposes of this section, the term nonresident
funding portal shall mean a funding portal incorporated in or organized
under the laws of a jurisdiction outside of the United States or its
territories, or having its principal place of business in any place not
in the United States or its territories.
    (2) Power of attorney. (i) Each nonresident funding portal
registered or applying for registration pursuant to this section shall
obtain a written consent and power of attorney appointing an agent in
the United States, other than the Commission or a Commission member,
official or employee, upon whom may be served any process, pleadings or
other papers in any action under the federal securities laws. This
consent and power of attorney must be signed by the nonresident funding
portal and the named agent(s) for service of process.
    (ii) Each nonresident funding portal registered or applying for
registration pursuant to this section shall, at the time of filing its
application on Form Funding Portal (Sec.  249.2000 of this chapter),
furnish to the Commission the name and address of its United States
agent for service of process on Schedule C to the Form.
    (iii) Any change of a nonresident funding portal's agent for
service of process and any change of name or address of a nonresident
funding portal's existing agent for service of process shall be
communicated promptly to the Commission through amendment of the
Schedule C to Form Funding Portal (Sec.  249.2000 of this chapter).
    (iv) Each nonresident funding portal must promptly appoint a
successor agent for service of process if the nonresident funding
portal discharges its identified agent for service of process or if its
agent for service of process is unwilling or unable to accept service
on behalf of the nonresident funding portal.
    (v) Each nonresident funding portal must maintain, as part of its
books and records, the written consent and power of attorney identified
in paragraph (f)(2)(i) of this section for at least three years after
the agreement is terminated.
    (3) Access to books and records; inspections and examinations--(i)
Certification and opinion of counsel. Any nonresident funding portal
applying for registration pursuant to this section shall:
    (A) Certify on Schedule C to Form Funding Portal (Sec.  249.2000 of
this chapter) that the nonresident funding portal can, as a matter of
law, and will provide the Commission and any registered national
securities association of which it becomes a member with prompt access
to the books and records of such nonresident funding portal and can, as
a matter of law, and will submit to onsite inspection and examination
by the Commission and any registered national securities association of
which it becomes a member; and
    (B) Provide an opinion of counsel that the nonresident funding
portal can, as a matter of law, provide the Commission and any
registered national securities association of which it becomes a member
with prompt access to the books and records of such nonresident funding
portal and can, as a matter of law, submit to onsite inspection and
examination by the Commission and any registered national securities
association of which it becomes a member.
    (ii) Amendments. The nonresident funding portal shall re-certify,
on Schedule C to Form Funding Portal (Sec.  249.2000 of this chapter),
within 90 days after any changes in the legal or regulatory framework
that would impact the nonresident funding portal's ability to provide,
or the manner in which it provides, the Commission, or any registered
national securities association of which it is a member, with prompt
access to its books and records or that would impact the Commission's
or such registered national securities association's ability to inspect
and examine the nonresident funding portal. The re-certification shall
be accompanied by a revised opinion of counsel describing how, as a
matter of law, the nonresident funding portal can continue to meet its
obligations under paragraphs (f)(3)(i)(A) and (B) of this section.

Sec.  227.401  Exemption.

    A funding portal that is registered with the Commission pursuant to
Sec.  227.400 is exempt from the broker

registration requirements of section 15(a)(1) of the Exchange Act (15
U.S.C. 78o(a)(1)) in connection with its activities as a funding
portal.

Sec.  227.402  Conditional safe harbor.

    (a) General. Under section 3(a)(80) of the Exchange Act (15 U.S.C.
78c(a)(80)), a funding portal acting as an intermediary in a
transaction involving the offer or sale of securities in reliance on
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) may not:
offer investment advice or recommendations; solicit purchases, sales,
or offers to buy the securities offered or displayed on its platform or
portal; compensate employees, agents, or other persons for such
solicitation or based on the sale of securities displayed or referenced
on its platform or portal; hold, manage, possess, or otherwise handle
investor funds or securities; or engage in such other activities as the
Commission, by rule, determines appropriate. This section is intended
to provide clarity with respect to the ability of a funding portal to
engage in certain activities, consistent with the prohibitions under
section 3(a)(80) of the Exchange Act. No presumption shall arise that a
funding portal has violated the prohibitions under section 3(a)(80) of
the Exchange Act or this part by reason of the funding portal or its
associated persons engaging in activities in connection with the offer
or sale of securities in reliance on section 4(a)(6) of the Securities
Act that do not meet the conditions specified in paragraph (b) of this
section. The antifraud provisions and all other applicable provisions
of the federal securities laws continue to apply to the activities
described in paragraph (b) of this section.
    (b) Permitted activities. A funding portal may, consistent with the
prohibitions under section 3(a)(80) of the Exchange Act (15 U.S.C.
78c(a)(80)) and this part:
    (1) Determine whether and under what terms to allow an issuer to
offer and sell securities in reliance on section 4(a)(6) of the
Securities Act (15 U.S.C. 77d(a)(6)) through its platform; provided
that a funding portal otherwise complies with this part;
    (2) Apply objective criteria to highlight offerings on the funding
portal's platform where:
    (i) The criteria are reasonably designed to highlight a broad
selection of issuers offering securities through the funding portal's
platform, are applied consistently to all issuers and offerings and are
clearly displayed on the funding portal's platform;
    (ii) The criteria may include, among other things, the type of
securities being offered (for example, common stock, preferred stock or
debt securities); the geographic location of the issuer; the industry
or business segment of the issuer; the number or amount of investment
commitments made, progress in meeting the issuer's target offering
amount or, if applicable, the maximum offering amount; and the minimum
or maximum investment amount; provided that the funding portal may not
highlight an issuer or offering based on the advisability of investing
in the issuer or its offering; and
    (iii) The funding portal does not receive special or additional
compensations for highlighting one or more issuers or offerings on its
platform;
    (3) Provide search functions or other tools that investors can use
to search, sort, or categorize the offerings available through the
funding portal's platform according to objective criteria where;
    (i) The criteria may include, among other things, the type of
securities being offered (for example, common stock, preferred stock or
debt securities); the geographic location of the issuer; the industry
or business segment of the issuer; the number or amount of investment
commitments made, progress in meeting the issuer's target offering
amount or, if applicable, the maximum offering amount; and the minimum
or maximum investment amount; and
    (ii) The criteria may not include, among other things, the
advisability of investing in the issuer or its offering, or an
assessment of any characteristic of the issuer, its business plan, its
key management or risks associated with an investment.
    (4) Provide communication channels by which investors can
communicate with one another and with representatives of the issuer
through the funding portal's platform about offerings through the
platform, so long as the funding portal (and its associated persons):
    (i) Does not participate in these communications, other than to
establish guidelines for communication and remove abusive or
potentially fraudulent communications;
    (ii) Permits public access to view the discussions made in the
communication channels;
    (iii) Restricts posting of comments in the communication channels
to those persons who have opened an account on its platform; and
    (iv) Requires that any person posting a comment in the
communication channels clearly disclose with each posting whether he or
she is a founder or an employee of an issuer engaging in promotional
activities on behalf of the issuer, or is otherwise compensated,
whether in the past or prospectively, to promote an issuer's offering;
    (5) Advise an issuer about the structure or content of the issuer's
offering, including assisting the issuer in preparing offering
documentation;
    (6) Compensate a third party for referring a person to the funding
portal, so long as the third party does not provide the funding portal
with personally identifiable information of any potential investor, and
the compensation, other than that paid to a registered broker or
dealer, is not based, directly or indirectly, on the purchase or sale
of a security in reliance on section 4(a)(6) of the Securities Act (15
U.S.C. 77d(a)(6)) offered on or through the funding portal's platform;
    (7) Pay or offer to pay any compensation to a registered broker or
dealer for services, including referrals pursuant to paragraph (b)(6)
of this section, in connection with the offer or sale of securities by
the funding portal in reliance on section 4(a)(6) of the Act(15 U.S.C.
77d(a)(6)), provided that:
    (i) Such services are provided pursuant to a written agreement
between the funding portal and the registered broker or dealer;
    (ii) Such services and compensation are permitted under this part;
and
    (iii) Such services and compensation comply with the rules of any
registered national securities association of which the funding portal
is a member;
    (8) Receive any compensation from a registered broker or dealer for
services provided by the funding portal in connection with the offer or
sale of securities by the funding portal in reliance on section 4(a)(6)
of the Securities Act (15 U.S.C. 77d(a)(6)), provided that:
    (i) Such services are provided pursuant to a written agreement
between the funding portal and the registered broker or dealer;
    (ii) Such compensation is permitted under this part; and
    (iii) Such compensation complies with the rules of any registered
national securities association of which the funding portal is a
member;
    (9) Advertise the existence of the funding portal and identify one
or more issuers or offerings available on the portal on the basis of
objective criteria, as long as:
    (i) The criteria are reasonably designed to identify a broad
selection of issuers offering securities through the funding portal's
platform, and are applied consistently to all potential issuers and
offerings;

    (ii) The criteria may include, among other things, the type of
securities being offered (for example, common stock, preferred stock or
debt securities); the geographic location of the issuer; the industry
or business segment of the issuer; the expressed interest by investors,
as measured by number or amount of investment commitments made,
progress in meeting the issuer's target offering amount or, if
applicable, the maximum offering amount; and the minimum or maximum
investment amount; and
    (iii) The funding portal does not receive special or additional
compensation for identifying the issuer or offering in this manner;
    (10) Deny access to its platform to, or cancel an offering of an
issuer, pursuant to Sec.  227.301(c)(2), if the funding portal has a
reasonable basis for believing that the issuer or the offering presents
the potential for fraud or otherwise raises concerns about investor
protection;
    (11) Accept, on behalf of an issuer, an investment commitment for
securities offered in reliance on section 4(a)(6) of the Securities Act
(15 U.S.C. 77d(a)(6)) by that issuer on the funding portal's platform;
    (12) Direct investors where to transmit funds or remit payment in
connection with the purchase of securities offered and sold in reliance
on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)); and
    (13) Direct a qualified third party, as required by Sec.
227.303(e), to release proceeds to an issuer upon completion of a
crowdfunding offering or to return proceeds to investors in the event
an investment commitment or an offering is cancelled.

Sec.  227.403  Compliance.

    (a) Policies and procedures. A funding portal must implement
written policies and procedures reasonably designed to achieve
compliance with the federal securities laws and the rules and
regulations thereunder relating to its business as a funding portal.
    (b) Privacy. A funding portal must comply with the requirements of
part 248 of this chapter as they apply to brokers.
    (c) Inspections and examinations. A funding portal shall permit the
examination and inspection of all of its business and business
operations that relate to its activities as a funding portal, such as
its premises, systems, platforms, and records by representatives of the
Commission and of the registered national securities association of
which it is a member.

Sec.  227.404  Records to be made and kept by funding portals.

    (a) Generally. A funding portal shall make and preserve the
following records for five years, the first two years in an easily
accessible place:
    (1) All records related to an investor who purchases or attempts to
purchase securities through the funding portal;
    (2) All records related to issuers who offer and sell or attempt to
offer and sell securities through the funding portal and the control
persons of such issuers;
    (3) Records of all communications that occur on or through its
platform;
    (4) All records related to persons that use communication channels
provided by a funding portal to promote an issuer's securities or
communicate with potential investors;
    (5) All records required to demonstrate compliance with the
requirements of subparts C (Sec. Sec.  227.300 through 227.305) and D
(Sec. Sec.  227.400 through 227.404) of this part;
    (6) All notices provided by such funding portal to issuers and
investors generally through the funding portal's platform or otherwise,
including, but not limited to, notices addressing hours of funding
portal operations (if any), funding portal malfunctions, changes to
funding portal procedures, maintenance of hardware and software,
instructions pertaining to access to the funding portal and denials of,
or limitations on, access to the funding portal;
    (7) All written agreements (or copies thereof) entered into by such
funding portal relating to its business as such;
    (8) All daily, monthly and quarterly summaries of transactions
effected through the funding portal, including:
    (i) Issuers for which the target offering amount has been reached
and funds distributed; and
    (ii) Transaction volume, expressed in:
    (A) Number of transactions;
    (B) Number of securities involved in a transaction;
    (C) Total amounts raised by, and distributed to, issuers; and
    (D) Total dollar amounts raised across all issuers, expressed in
U.S. dollars; and
    (9) A log reflecting the progress of each issuer who offers or
sells securities through the funding portal toward meeting the target
offering amount.
    (b) Organizational documents. A funding portal shall make and
preserve during the operation of the funding portal and of any
successor funding portal, all organizational documents relating to the
funding portal, including but not limited to, partnership agreements,
articles of incorporation or charter, minute books and stock
certificate books (or other similar type documents).
    (c) Format. The records required to be maintained and preserved
pursuant to paragraph (a) of this section must be produced, reproduced,
and maintained in the original, non-alterable format in which they were
created or as permitted under Sec.  240.17a-4(f) of this chapter.
    (d) Third parties. The records required to be made and preserved
pursuant to this section may be prepared or maintained by a third party
on behalf of a funding portal. An agreement with a third party shall
not relieve a funding portal from the responsibility to prepare and
maintain records as specified in this rule. A funding portal must file
with the registered national securities association of which it is a
member, a written undertaking in a form acceptable to the registered
national securities association, signed by a duly authorized person of
the third party, stating in effect that such records are the property
of the funding portal and will be surrendered promptly on request of
the funding portal. The undertaking shall include the following
provision:

    With respect to any books and records maintained or preserved on
behalf of [name of funding portal], the undersigned hereby
acknowledges that the books and records are the property of [name of
funding portal], and hereby undertakes to permit examination of such
books and records at any time, or from time to time, during business
hours by representatives of the Securities and Exchange Commission
and the registered national securities association of which the
funding portal is a member, and to promptly furnish to the
Commission, its representatives, and the registered national
securities association of which the funding portal is a member, a
true, correct, complete and current hard copy of any, all, or any
part of, such books and records.

    (e) Review of records. All records of a funding portal are subject
at any time, or from time to time, to reasonable periodic, special, or
other examination by the representatives of the Commission and the
registered national securities association of which a funding portal is
a member. Every funding portal shall furnish promptly to the
Commission, its representatives, and the registered national securities
association of which the funding portal is a member true, correct,
complete and current copies of such records of the funding portal that
are requested by the representatives of the Commission and the
registered national securities association.
    (f) Financial recordkeeping and reporting of currency and foreign
transactions. A funding portal that is subject to the requirements of
the Currency and Foreign Transactions Reporting Act of 1970 (15 U.S.C.
5311

et seq.) shall comply with the reporting, recordkeeping and record