Can You Sell Reg CF Shares?

Regulation Crowdfunding (Reg CF) has opened up new opportunities for startups and small businesses to raise capital from a broader pool of investors, including non-accredited investors. However, one question that often arises for those considering investing in Reg CF offerings is whether they can sell or transfer the shares they acquire.The short answer is yes, but with certain restrictions and limitations.

The 12-Month Holding Period

According to federal law, investors are restricted from reselling or transferring their Reg CF securities for the first 12 months after the closing of the offering, with a few exceptions:

• Selling back to the company that issued the securities

• Selling to an accredited investor

• Transferring to a family member (child, spouse, sibling, parent, etc.)

• Transferring to a trust controlled by the investor or for the benefit of a family member

• Transferring in connection with death, divorce, or other similar circumstances

• Transferring as part of a later SEC-registered offering

This 12-month holding period is designed to prevent immediate flipping of Reg CF shares and to ensure that investors have a long-term interest in the success of the company they are investing in.

After the 12-Month Period

Once the 12-month holding period has passed, investors are generally allowed to sell or transfer their Reg CF securities, subject to any applicable state or foreign laws. However, it's important to note that there may not be an active market or ready buyers for these private company securities.

Unlike publicly traded stocks, Reg CF shares are not listed on any exchange, and there is no guarantee that a market will develop for their resale. Investors may need to find interested buyers on their own or wait for a liquidity event, such as an acquisition or an initial public offering (IPO) by the company.

Potential Liquidity Events

While the lack of an immediate market for Reg CF shares can be a drawback, there are potential liquidity events that could allow investors to cash out their investments:

1. Acquisition: If the company is acquired by another entity, investors may have the opportunity to sell their shares as part of the acquisition deal.

2. Initial Public Offering (IPO): If the company goes public through an IPO, investors may be able to sell their shares on the public market once the IPO is completed.

3. Secondary Market Transactions: Some platforms or brokers may facilitate secondary market transactions for private company shares, allowing investors to potentially sell their Reg CF shares to other interested buyers.

It's important to note that these liquidity events are not guaranteed, and investors should be prepared to hold their Reg CF investments for an extended period, potentially indefinitely.

Considerations for Investors

When investing in Reg CF offerings, it's crucial for investors to understand the potential illiquidity of their investments and the limitations on reselling or transferring their shares. Investors should only invest what they can afford to have tied up for an extended period and should carefully evaluate the risks and potential rewards of each investment opportunity.

Additionally, investors should consult with legal and financial advisors to ensure compliance with all applicable laws and regulations when considering the sale or transfer of Reg CF securities.

While Reg CF offers exciting opportunities for both startups and investors, it's essential to approach these investments with a clear understanding of the risks and limitations involved, including the potential challenges in selling or transferring shares acquired through these offerings.