Financial Disclosures You're Entitled to when Crowd Investing

Know Your Rights to Financial Information

You are now able to invest in startups through crowdfunding, but you should be aware of how to make wise investments. According to the SEC ruling, investors in crowd funded equities are entitled to financial disclosures related to the issuing company, but financial statements don't necessarily need to be audited nor reviewed. 

The following is for educational purposes only and does not constitute legal nor investment advice. Educate yourself on the disclosures you are entitled to, but always seek advice from a qualified professional before making an investment decision. This is not an exhaustive analysis of the ruling, but a summary of the disclosures to provide readers with a baseline understanding of their rights to disclosure.

Financial Disclosures

The company is required to provide financial disclosures about its assets, liabilities, revenues, and costs. Requirements related to the review of these financial statements by outside accounting firms vary depending on the offering. Financial statements include balance sheets, income statements, statements of cash flows, and statements of changes in owners equity; and must be prepared in accordance with U.S. generally accepted accounting principles.

Offerings of $100,000 or Less

If the total offering is equal to or less than $100,000, then no outside review of financial statements are required. Financial statements need only be certified by the principal executive officer to be true and complete.  If available, information from the most recently completed year's tax return for the company is also required, including the total income, taxable income, and total tax. Alternatively, if reviewed or audited financial statements are available, those must be provided.

Offerings Up to $500,000

Offerings above $100,000 up to $500,000 are required to provide financial statements that are reviewed by an independent public accounting firm. A review of financial statements is significantly less detailed than an audit. During a review, the accounting firm is required to analyze the financial statements to see if the numbers seem reasonable, but the firm does not need to verify the numbers against source material. Alternatively, if audited financial statements are available, those must be provided.

Offerings Over $500,000

Offerings over $500,000 are required to provide reviewed financial statements if it is the issuers first time offering crowdfunding securities. If the company has used crowdfunding before for offering securities, audited financial statements are required., again by an independent public accounting firm. Audited statements means the accounting firm researched the numbers in the statements and verified them against source documents such as purchase orders, sales receipts, and invoices. 

Financial Condition Discussion

The rule requires a narrative discussion of the financial condition of the company including liquidity, capital resources, historical results of operations, and any trends known to management. These narratives may be included at the beginning of the financial disclosure, but some companies may place them within the business plan disclosures required for crowd investing. Narrative discussion will be easier for investors to digest, but can also be used to spin the financials in a particular way. Investors should always verify the narrative discussions against the other financial documents provided in the disclosures.

Annual Reporting Requirement

Once funded, investors are entitled to an annual report of the results of operations and financial statement of the company. The rule only requires that the annual report be published on the company's website, and that the website address where the annual report is published be disclosed in the original disclosures. Make sure to copy and save the URL (found in the original disclosures on the crowdfunding portal) where the annual report will be published.

Financial statements in the annual report do not need to be audited nor reviewed, only certified as accurate and complete by the principal executive.


Issuers are also required to disclose the debt the company is currently saddled with. Disclosures must include at the least the amount of debts, the interest rates, and maturity date of the debts. If information about the debts of the company is not represented in the financial disclosures, look for a separate disclosure document.

Understand the Risks

Crowdfunded investing is here to stay, with a lot of opportunity and enormous risks for the average investor. Makes sure you understand the risks associated with crowd investing before you commit your hard-earned money.

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