Form C is the disclosure document used in Reg CF. Because I see so many Form Cs that aren’t done properly, I thought it would be worthwhile to explain how a Form C should be drafted and why too many lawyers go astray.

Rule 201 (17 CFR §227.201) tells us exactly what should be disclosed in a Form C:

• Rule 201(a) calls for the name, legal status, physical address, and website of the issuer.
• Rule 201(b) calls for the names and business experience of officers and directors. 
• Rule 201(c) calls for the name of each person owning 20% or more of the voting stock.
• All the way through Rule 201(z), which calls for copies of testing the waters materials.

Rule 201 is exhaustive, i.e., there is no disclosure requirement in Reg CF outside Rule 201, other than a short financial summary. 

If you had never prepared a disclosure document, how would you provide the disclosures required by Rule 201? Chances are, you would simply go down the list, from Rule 201(a) to Rule 201(z), and provide answers to all the questions. And that is exactly the right way to do it.

Look at this Form C, for a company called ScienceCast, Inc. Look at the Table of Contents, how it just goes through Rule 201, item-by-item. Look at the body, where each item is labeled with the corresponding rule. Look how the Form C describes the role of the crowdfunding vehicle, or SPV. If you had never prepared a disclosure document and were trying to do things right, I bet this is how you would do it.

Yet look at most of the Form Cs that are filed with the SEC. They don’t follow this format at all or follow it only loosely. In the worst case, of which there are many examples, you can’t even tell it’s a Form C. It looks like a typical Private Placement Memorandum you would see in a Regulation D offering.

And that explains why too many lawyers go off track. A lawyer who has prepared hundreds of Private Placement Memoranda thinks “A Form C is just another type of disclosure document. I’ll start with the form I’m already familiar with rather than create something new from scratch.”

Legal forms can be very useful, but they can also become like an old ship encrusted with barnacles. Over time, lawyers tend to add things to form documents as new cases are decided or new concepts come to mind, but rarely is any of the old stuff scraped away, much less the whole document re-thought.

Using the fresh-out-of-the-box Form C rather than the encrusted Private Placement Memorandum has many benefits:

• It’s far easier to make sure all the disclosures are there.
• It’s far easier to check for accuracy.
• It’s far easier to create an easy-to-understand template.
• It’s far more efficient, cutting costs.
• It’s far easier for a lawyer to prepare or review, cutting costs.
• It’s far easier for the funding portal to explain to the issuer.
• It avoids all the duplication you see in a typical PPM.
• It avoids all the state notices and other unnecessary legal boilerplate you see in a typical PPM.
• It’s far easier for an investor to compare one offering to another.
• It’s far easier for an investor to read and understand.
• It uses less energy, reducing the impact of Reg CF on the fragile coral reefs surrounding Australia.

For Reg CF to grow, the industry must standardize. I hope it can at least standardize around a Form C.

Questions? Let me know.

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• Source: https://crowdfundingattorney.com/2024/02/29/how-to-draft-a-form-c-for-reg-cf/