Published on
July 8, 2025
Financial Statement Rules for Crowdfunding
Understand the financial statement requirements for crowdfunding under Regulation Crowdfunding to ensure compliance and build investor trust.
Under Regulation Crowdfunding (Reg CF), businesses can raise up to $5 million annually by selling securities to investors. However, the amount you raise determines the financial reporting requirements:
- Up to $124,000: Financial statements certified by the principal executive officer.
- $124,001 to $618,000: CPA-reviewed financial statements.
- $618,001 to $1,235,000: CPA-reviewed or audited financial statements.
- Over $1,235,000: Audited financial statements by an independent CPA.
All financial statements must adhere to GAAP and are submitted via Form C to the SEC. Companies must also file annual updates using Form C-AR within 120 days of their fiscal year-end. Non-compliance can result in fines, legal actions, and reputational damage.
Working with financial advisors can simplify compliance, ensure accurate reporting, and help meet deadlines. Services like bookkeeping, CPA reviews, and fractional CFO support are often essential for meeting these strict requirements.
Equity Crowdfunding and Regulation Crowdfunding (Reg CF) Basics
What is Equity Crowdfunding?
Equity crowdfunding stands apart from donation- or rewards-based crowdfunding by giving contributors a tangible stake in the company. Instead of receiving perks or tokens of appreciation, investors purchase equity, gaining ownership in the business. This means they can share in the company’s profits through dividends or distributions. Unlike traditional crowdfunding, equity crowdfunding allows companies to raise much larger amounts - often surpassing $50,000 - while providing investors with a direct financial interest in the business. This ownership-driven model operates within a regulatory framework designed to protect investors.
Regulation Crowdfunding (Reg CF) Rules
Reg CF creates the legal foundation for equity crowdfunding in the U.S. The Securities and Exchange Commission (SEC) developed Regulation Crowdfunding as part of the JOBS Act of 2012, which opened the door for both accredited and non-accredited investors to participate in startup funding. To prevent non-accredited investors from taking on undue risk, Reg CF enforces annual investment limits based on an individual’s income and net worth.
Under Reg CF, companies can raise up to $5 million in a 12-month period through crowdfunding. These transactions must occur through SEC-registered online platforms, ensuring transparency and compliance. Additionally, securities purchased through crowdfunding generally cannot be sold for at least one year, adding an extra layer of stability.
Companies using Reg CF must meet strict disclosure requirements. They’re required to file Form C with the SEC, detailing financial and operational information, and provide annual updates through Form C-AR to keep investors informed. To further protect participants, Reg CF includes "bad actor" provisions, which disqualify companies with certain legal issues from taking part in crowdfunding.
These regulations are designed to balance investor protection with the flexibility companies need to raise capital, laying the groundwork for the detailed financial reporting and compliance obligations that vary depending on the amount of funding a business seeks.
Financial Statement Requirements Under Reg CF
Regulation Crowdfunding (Reg CF) outlines financial statement requirements based on how much money a company aims to raise. This tiered system ensures that higher fundraising efforts come with stricter financial scrutiny to safeguard investors. The rules also specify how financial statements should be formatted and when they need to be submitted.
Funding Amount Thresholds and Requirements
The SEC has set up three funding tiers under Reg CF, each with its own financial statement expectations:
| Offering Amount | Financial Statement Requirements |
|---|---|
| Up to $107,000 | Unaudited financial statements certified by the principal executive officer |
| $107,001 to $535,000 | CPA-reviewed financial statements prepared by an independent certified public accountant |
| $535,001 to $5,000,000 | Audited financial statements conducted by an independent certified public accountant |
For companies raising up to $107,000, financial statements can be self-prepared and certified by the principal executive officer. While this is the least expensive option, it puts full accountability on company leadership to ensure the information is accurate.
When raising $107,001 to $535,000, companies must submit CPA-reviewed financial statements. This process involves a certified public accountant performing analytical reviews to provide limited assurance of accuracy. While more costly than self-certification, it’s less expensive than a full audit.
For funding amounts between $535,001 and $5,000,000, a full audit by an independent CPA is mandatory. This comprehensive review ensures the highest level of financial transparency and reliability.
These thresholds are calculated based on the total amount raised through Reg CF during the previous 12 months. Companies need to account for all cumulative fundraising activity, not just the current campaign.
Statement Format and Deadlines
Reg CF also establishes strict guidelines for how financial statements should be formatted and when they must be submitted. All financial statements - including balance sheets, income statements, cash flow statements, stockholders' equity, and accompanying notes - must adhere to U.S. GAAP standards. They should cover the two most recent fiscal years or the period since the company’s inception if it has been operating for less than two years.
For unaudited and CPA-reviewed statements, companies must clearly label them as "unaudited" to inform investors of the verification level. Only statements for the highest tier (audited financials) undergo the most rigorous checks.
Financial statements are submitted as part of Form C, which is filed with the SEC. Additionally, companies must provide updates on Form C-U within five business days of reaching 50% and 100% of their target funding goal. After the campaign concludes, annual reports must be filed on Form C-AR within 120 days of the fiscal year’s end.
These annual reports are filed on the SEC’s EDGAR platform and must also be published on the company’s website. This ensures ongoing transparency and keeps investors informed. The 120-day window gives companies enough time to prepare accurate reports while maintaining consistent communication with their backers.
Between 2016 and early 2024, 7,134 issuers completed 8,492 Reg CF offerings, collectively raising about $1.3 billion. This level of activity highlights the importance of understanding these financial requirements to unlock the potential of crowdfunding as a funding source.
Audit and Review Thresholds for Crowdfunding
The level of funding a company seeks directly influences the type of financial statement review required, impacting both the level of scrutiny and associated costs. The SEC has outlined specific thresholds under Regulation Crowdfunding (Reg CF) to determine whether financial statements need to be certified by company officers, reviewed by a CPA, or fully audited. Below, we’ll break down these thresholds and what they mean for businesses.
Financial Statement Requirements by Funding Level
Regulation Crowdfunding uses a tiered system for financial statement requirements, where the level of review becomes more rigorous as the amount of money being raised increases. This approach balances the need to protect investors with the practical realities of running a business.
| Offering Amount | Financial Statement Requirements | Who Prepares/Reviews |
|---|---|---|
| Up to $124,000 | Financial statements and specific tax return line items, certified by the principal executive officer | Principal executive officer |
| $124,001 to $618,000 | Financial statements reviewed by an independent public accountant | Independent CPA (review level) |
| $618,001 to $1,235,000 | Financial statements reviewed by an independent public accountant (or audited if available) | Independent CPA (review or audit level) |
| More than $1,235,000 | Financial statements audited by an independent public accountant | Independent CPA (full audit) |
Let’s explore each funding level in more detail:
For companies raising up to $124,000, the process is relatively simple. The principal executive officer is responsible for certifying the financial statements and providing specific line items from the company’s tax returns. This self-certification keeps costs minimal, making it a practical option for smaller fundraising efforts. However, it still requires company leadership to take accountability for the financial data presented.
When raising $124,001 to $618,000, companies must take an additional step by hiring an independent public accountant to review their financial statements. A review involves procedures and inquiries that provide limited assurance about the accuracy of the financial data. While not as detailed as an audit, this step offers investors more confidence in the numbers without imposing the higher costs of a full audit.
For fundraising efforts between $618,001 and $1,235,000, companies have two options. If audited financial statements already exist, they can be used to meet the requirements. If not, a CPA review is sufficient. This flexibility allows businesses to avoid unnecessary duplication of effort while still meeting regulatory standards.
For offerings exceeding $1,235,000, a full audit is required, even for companies that have previously raised funds under Reg CF. A full audit provides the highest level of assurance to investors, ensuring maximum financial transparency. However, it also comes with increased costs and complexity, which companies should account for in their budgets and timelines.
It’s important to note that these thresholds are based on the total amount raised over the past 12 months. Companies planning larger campaigns should be prepared for the additional costs and time associated with higher levels of financial scrutiny.
Reporting Requirements After Crowdfunding
Once your Regulation Crowdfunding campaign concludes, the work doesn’t stop there. Companies are required to meet ongoing reporting obligations to remain in compliance with SEC regulations and maintain investor trust. These reporting duties ensure transparency, building on the initial disclosure requirements set during the campaign.
Annual Reports and Updates
If your company has raised funds through Regulation Crowdfunding, you’ll need to file an annual report using Form C-AR within 120 days after the end of your fiscal year. This isn’t a one-time task - it’s an annual obligation that continues until certain conditions allow you to stop reporting.
Here’s what you need to know:
- File the report through the SEC’s EDGAR system and make it available on your company’s website. This dual approach ensures compliance and keeps investors informed.
- Form C-AR requires updated disclosures similar to what was provided in Form C, but it excludes information about securities sales.
- Financial statements included in the report must follow GAAP standards and be certified by management. However, unlike the initial campaign, there’s no need for an audit or review of these financials - unless one has already been conducted since your campaign ended. This reduces ongoing compliance costs.
You can stop filing annual reports if you meet specific criteria. To formally end your reporting obligations, file Form C-TR with the SEC when one of the following applies:
- Your company is now required to file reports under Exchange Act Sections 13(a) or 15(d).
- You’ve filed at least one annual report and have fewer than 300 record holders of securities.
- You’ve filed at least three annual reports and your total assets are $10 million or less.
- All securities issued under Regulation Crowdfunding have been purchased or repurchased.
- Your company has been liquidated or dissolved in accordance with state law.
Staying on top of these reporting requirements not only keeps you compliant but also helps avoid potential penalties.
Penalties for Non-Compliance
Ignoring these reporting obligations can lead to serious consequences. The SEC has the authority to impose hefty fines and take enforcement actions against companies and individuals that violate securities laws.
Here’s what non-compliance could mean for your company:
- Regulatory penalties: These can include monetary fines, suspension or loss of registrations or licenses, and legal actions like injunctions or civil lawsuits.
- Providing false or incomplete financial information could trigger SEC enforcement actions and expose your company to civil lawsuits from investors seeking damages.
The fallout doesn’t stop with financial penalties. Reputational damage can be a long-term consequence, making it harder to attract investors in the future. A history of regulatory violations often signals poor management, deterring potential backers in subsequent funding rounds.
Operational challenges also arise, as non-compliance diverts management’s time and resources away from growing the business. Instead, you’ll be dealing with regulatory issues, legal proceedings, and investor concerns.
In severe cases, fraud or significant violations could lead to criminal charges, including jail time and steep financial penalties. These risks highlight why consistent compliance is so critical.
Ultimately, the cost of non-compliance - whether through legal fees, fines, or settlements - can far outweigh the expense of maintaining proper reporting. It’s always more efficient to stay compliant from the start.
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Working with Financial Advisors for Compliance
Navigating the complexities of crowdfunding compliance can feel like uncharted territory for many companies. With strict financial statement requirements, audit thresholds, and ongoing reporting obligations, even seasoned management teams can find themselves overwhelmed. To stay on top of these challenges, many businesses turn to financial advisors who bring specialized expertise to ensure compliance and protect investor interests.
How Financial Advisors Support Crowdfunding Compliance
Financial advisors play a critical role in crowdfunding, offering expertise that spans from campaign planning to ongoing compliance. Their work goes beyond basic bookkeeping, encompassing strategic planning, regulatory guidance, and the establishment of solid control systems.
One of the most important services they provide is the preparation of accurate financial statements. These professionals ensure that your financial disclosures comply with Generally Accepted Accounting Principles (GAAP) and meet the SEC's requirements for your funding level. Whether your campaign needs compiled statements for smaller raises or reviewed financials for larger initiatives, experienced CPAs can deliver the necessary documentation to support your efforts.
Timing is often everything in crowdfunding. For instance, in August 2024, Dianna Flores faced a tight deadline requiring three years of reviewed financials for a bid proposal. Ernest L. Tomkiewicz CPA PLLC completed the review in just 10 days, enabling her to meet the critical deadline.
Financial advisors also help companies navigate the intricacies of various regulatory frameworks like Regulation Crowdfunding (Reg CF), Regulation A (Reg A), and Regulation D (Reg D). With 60% of crowdfunding platforms identifying legal and regulatory compliance as a major hurdle, having expert advice is essential to selecting the right path for your funding goals.
Beyond the campaign, financial advisors streamline ongoing compliance by setting up systems for annual reporting, investor communications, and financial controls. They also assist with budgeting, cash flow management, and forecasting, ensuring your compliance strategy evolves alongside your business.
"Our specialized services ensure that startups and growing businesses can confidently navigate the regulatory landscape and meet all required deadlines." - Barton CPA PLLC
These benefits align seamlessly with the tailored services offered by Phoenix Strategy Group.
Phoenix Strategy Group Services
Phoenix Strategy Group specializes in financial and strategic advisory services for growth-stage companies tackling the demands of crowdfunding compliance. Their approach combines traditional financial expertise with modern technology, addressing the unique challenges that come with crowdfunding.
Here’s a snapshot of their services:
- Bookkeeping and Financial Foundation Services: Their Weekly Accounting System keeps financial records up-to-date and audit-ready, which is crucial for meeting tight crowdfunding deadlines.
- Fractional CFO Services: Part-time CFOs provide strategic financial leadership, guiding businesses from planning to post-campaign reporting while aligning compliance strategies with broader business objectives.
- FP&A Systems: Using their Integrated Financial Model, they deliver forecasting and budgeting tools that meet SEC compliance standards.
- Data Engineering and Analytics: Tools like Monday Morning Metrics offer real-time financial data synchronization, giving management teams immediate access to the information needed for investor or regulatory responses.
- Fundraising Support: They assist with KPI development, unit economics analysis, and cash flow forecasting, helping companies present strong cases to potential investors.
- M&A Advisory Services: For companies using crowdfunding as part of a larger growth strategy, their expertise in preparing businesses for exits ensures financial and compliance systems are ready for future transactions.
The team behind Phoenix Strategy Group - David Metzler, John Zdanowski, and Ethan Lu - brings extensive experience in scaling businesses, securing funding, and planning successful exits. Their services are designed not only to address compliance challenges but also to align with your broader business goals. Partnering with Phoenix Strategy Group means gaining access to a comprehensive suite of solutions that tackle the demands of crowdfunding while driving your company’s growth.
Conclusion
Clear financial statement rules are essential for building investor trust and ensuring the success of crowdfunding campaigns. With the equity crowdfunding market reaching $1.5 billion in 2018 and platforms like StartEngine raising over $400 million for more than 500 companies, the importance of accurate financial documentation has never been greater. This guide highlights how meeting regulatory standards not only ensures compliance but also boosts credibility with potential investors.
Providing reviewed or audited financial statements during a campaign significantly increases the likelihood of hitting fundraising goals. Why? Because these statements bridge the information gap between companies and investors, offering the transparency needed for confident decision-making.
Navigating SEC regulations can be tricky. Whether it’s adhering to GAAP for campaigns under $250,000 or securing independent auditor reports for raises over $1,070,000, professional guidance is often essential to staying compliant.
Taking a proactive approach can save time and reduce stress. Completing financial reviews early minimizes last-minute surprises, allowing companies to focus on connecting with investors and scaling their business. While review fees can range from $500 to $5,000, this upfront investment often determines whether a campaign succeeds or struggles. Early preparation and expert advice simplify compliance and pave the way for stronger fundraising outcomes.
For growth-stage companies, working with financial advisors like Phoenix Strategy Group can make all the difference. Their services - ranging from bookkeeping and fractional CFO support to M&A advisory - help ensure that your crowdfunding efforts are a launchpad for long-term success, not just a regulatory hurdle.
FAQs
What financial statements are required for different funding levels under Regulation Crowdfunding?
Regulation Crowdfunding Financial Statement Requirements
Under Regulation Crowdfunding, the level of financial documentation required depends on how much money a company aims to raise:
- For amounts up to $124,000, the financial statements only need certification from the issuer's CEO.
- For amounts between $124,000 and $618,000, an independent accountant must review the financial statements.
- For amounts exceeding $618,000, audited financial statements are required.
These guidelines aim to promote transparency and ensure investors have access to the financial details they need to make well-informed choices.
How can financial advisors help companies comply with Regulation Crowdfunding requirements?
Financial advisors are key players when it comes to guiding companies through the compliance maze of Regulation Crowdfunding. Their role includes helping businesses prepare precise financial statements, which might require review or auditing by independent accountants based on the amount of funding being raised. They also ensure companies meet all disclosure requirements, verify that investors are eligible, and maintain open communication with regulators.
With their expertise, financial advisors help businesses minimize legal risks, simplify the compliance process, and establish credibility with investors. This guidance is crucial for aligning with SEC regulations and executing a successful crowdfunding campaign.
What reporting requirements must companies follow after completing a crowdfunding campaign, and what are the consequences of not meeting them?
After wrapping up a crowdfunding campaign, businesses are required to submit an annual report (Form C-AR) to the SEC. This report must also be made accessible on the company’s website. The deadline for filing is 120 days after the close of their fiscal year. It typically covers updated financial statements, key business information, and any major developments since the campaign ended.
Missing this filing deadline can have serious repercussions, including financial penalties and even the loss of the ability to raise funds through crowdfunding in the future. Staying compliant isn't just about following the rules - it’s about maintaining investor confidence and keeping future fundraising options open.
