What is a Form C?
A Form C, also known as the Offering Statement, needs to be completed by any issuer conducting a Regulation Crowdfunding.
The issuer must electronically fill out the Form C and file it with the Securities and Exchange Commission (SEC). The purpose of Form C is for issuers to provide all the information as may be required by investors to make a decision before investing in the company’s crowdfunding offering.
A Form C assists investors in evaluating and studying the offering. With it, they can learn the details about the background of the company, potential risks related to investing in the company, the use of proceeds of the raise, and other critical information.
If any terms of the offering change before it gets closed or terminated, the issuer also needs to file an amendment to offering statement on Form C/A. The amendment must include all the additions, changes, or updates.
It’s also worth mentioning that Issuers also need to file Form C-U as updates towards meeting the target offering amount. The updates must be filed within five business days of reaching both 50% and 100% of the target offering amount.
Required Information in Form C
All issuers are required to disclose some mandatory information in their Form C. This information includes:
Information about the specific business of the company.
Information about the founders and the team.
The target offering amount and the deadline to reach the target.
The use of proceeds in case the minimum target amount and maximum target amount are reached.
The financial condition of the issuer and its financial statements.
Risks associated with investing in the company.
Different Sections of Form C
Basic Information about the Issuer
The first section of Form C includes basic information about the issuer, including the name of the issuer, CIK number, address, and date of incorporation. This information helps to identify the company and know how old the company is.
Information about the Intermediary
The next section of Form C includes information about the intermediary being used for the crowdfunding offering. It is one of the crowdfunding platforms like StartEngine, WeFunder, NextSeed, etc.
Offering information is one of the most important sections of the Form C. It specifies the type of security being issued, the number of securities issued, and the price at which securities are being issued.
The offering information also includes details about the minimum target amount, maximum target amount, and the deadline to reach the target offering amount.
Although past performance does not ensure future results, investors looking to invest in an early stage company always want to take a look at the financial performance of the company found on the Form C.
Form C includes the financial statements of the company akin to an annual report. The financial statements inform investors about the company’s total assets, total revenues, short-term debt, long-term debt, taxes paid, and net income.
However, the financial statement requirements vary with the amounts offered. For offerings less than $107,000, financial statements can just be reviewed and certified by the company’s principal executive officer while for offerings between $107,000 and $535,000, the financial statements must be reviewed by a public accountant independent of the issuer. For offerings more than $535,000, the financial statements must be reviewed and certified by an independent auditor.
The offering memorandum is filed as an exhibit to Form C.
It contains detailed information about the company and its business, the founders and team, and the offering. The memorandum also contains in-depth information about the ownership of the company, the company’s securities, and voting rights.
Additionally, the offering memorandum includes details of all the recent offerings of the company in the past few years and the financial condition of the company including results of operations, liquidity, capital resources, indebtedness, and valuation.
The most significant part of the offering memorandum is information about potential risks. While investing in a crowdfunding offering, investors are already subject to inherent risks associated with investing in an early-stage company. The memorandum spells out other risks in detail as well so that investors are entirely aware of the inherent risks with any investment.
The offering memorandum also breaks down how the funds for a equity crowdfunding round might be used under different scenarios (whether the minimum target is met or the maximum).
For example, if the minimum target is reached, a typical round might see 6% of the proceeds used to pay the intermediary fees, 14% will be used for marketing, and the remaining 80% will be used for product development. On the other hand, if the maximum target is reached, 4% will be used to pay intermediary fees, 10% for marketing, 25% for operations, and 61% on product development.
What You Need to Know
The Form C contains all the information that is required by potential investors before they invest in the crowdfunding offering. It becomes a window to the company, its past, present, and plans for the future, and helps investors make an informed decision.