Can I have both 506c and Title III offerings on my website?

By Scott Purcell,  Fund America Founder & CEO, CrowdFundBeat Guest post


This article is for people who are considering entering the Title III crowdfunding space.

Next week you will be able to file with FINRA to operate a funding portal. There are 2 types of company’s who are legally able to operate a Title III (the new 4(a)(6) crowdfunding exemption) “portal”: funding portals (FP) and broker dealers (BD). Both are SEC registered, FINRA member firms. If you are not one of those then you cannot have a Title III crowdfunding portal. Period.

May 16th is the “go live” date for the rules. So portals who get FINRA approval before that date will be able to launch.

Common Question: can you have both 506(c) and 4(a)(6) offerings on the same website?

Answer: for FP’s, the answer is “no” (but there is a workaround, see “Solution” below). For BD’s it’s “maybe”.

Why Important: all investors, including accredited investors, are subject to regulatory-imposed caps on how much they can invest per year (not “per deal”) in 4(a)(6) offerings. Thus an accredited investor with $300,000 in annual income & $10M in net worth can only invest $30,000/yr total in all 4(a)(6) offerings combined, but unlimited amounts in 506(c) offerings. Even a large institutional investor that might want to help get small businesses funded is effectively prohibited from doing so because of the $100,000/yr cap. Thus, the only way to effectively deal with this is for an issuer to run concurrent 4(a)(6) and 506(c) offerings, which is permitted, and put accredited investors into the 506 and nonaccredited into the 4(a)(6). Engineering this is not too difficult.

Restrictions: however, since FP’s cannot engage in 506(c) (or 506(b) or Reg A or any other) business, then they can’t do this directly.

Solution: post the 506(c) offerings on a website that is operated by a non-registered, non-regulated entity (either as an investment adviser platform or a fee based platform), and create a wholly-owned subsidiary that is registered as an FP.
=> Offerings on the non-registered “platform” cannot be displayed on the registered “portal” (key to note those 2 terms are different from a regulatory perspective). However, offerings from the FP can be displayed (advertised) on the non-registered platform! Thus I expect that most people will continue to market their primary brand (e.g., operated as a non-regulated entity, to drive traffic to all offerings, including 4(a)(6). Anyone who clicks on a Title III offering on the non-regulated site would be linked over to the full offering details on the Portal (e.g.

Summary: operate your Title III portal as a separate entity from your 506(c) platform. Set it up as a subsidiary of a parent holding company using a common brand (e.g. MyFunding Tech, LLC is different than MyFunding Crowd, LLC). Be very careful as to how you structure compensation and conduct marketing activities. Rely on a good attorney and an experienced compliance expert to help you get set up and operate your business.

Of course FundAmerica is supporting the crowdfunding industry! We have simplified our fees for Title III:
Escrow & Transfer Agent
* Invest Now API – $0 (no fees to setup or initiate business, we only make money when you do)
* Escrow – $225 (setup), $25/mo bank account fee (regardless of amount of funds)
* Transaction Fee:  $10 per transaction <=$500, $35 > $500
=> (includes escrow accounting, eSignature system, domestic investor AML, NACHA debit authorization, ACH funds transfer & receipt, Invest Now-API license, dashboard tools, transfer agent setup & recording)

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