Recently, CI reported on the requirement to file a Form C-AR (annual report) for firms that raised money using the Reg CF securities exemption.
While Reg CF is a notice filing there are still legal requirements to remain compliant on an ongoing basis for firms that issued securities using the exemption. Unfortunately, it seems that many issuers are ignoring the requirement or simply are unaware of the need to file the document with the SEC.
Earlier this month, CI connected with Chris Lustrino, the CEO and founder of crowdfunding data firm KingsCrowd. Lustrino shared that the number of issuers who have not filed the form with the SEC is over 40%. He described the shortfall as a widespread issue for the industry as these companies are not compliant.
Yesterday, CI received a note from Crowdfund Capital Advisors (CCA) indicating they are supply9ing a free guide designed to help fhese firms remain compliant.
Sherwood Neiss, CCA principle and co-founder, said they believe that firms are not providing the Form C-AR because they do not understand it or find it confusing.
“To counter this, we created a free step-by-step process that anyone can do. Compliance with a company’s annual reporting is not a nice-to-do but a must-do,” said Neiss. “There are a myriad of reasons why issuers should be diligent with their filing. Not just because it is the law but because issuers owe it to their investors who have entrusted them with their money. Investors want to know what’s happened to their investment over the past 12 months. We put this in the law so they would get an update at least once a year.”
Niess added that filing the form also signals that future, follow on funding rounds will be more transparent as you will know how the company is performing.
“If you aren’t filing your annual reports, this is a negative signal to potentially interested venture capital firms that want to come in on a future round. While the process can be confusing, particularly if this is your first time, we created this step-by-step guide so that anyone can do it. Once anyone has done it once, they will understand how easy it is to do each year.”
So the moral of the story is to file your required documents with the SEC, otherwise you are out of compliance and will not be able to pursue future funding rounds (and you will probably upset your investors).