When can crowdfunding investors sell their shares?

Usually not soon, and an honest offering says so. Securities bought in a Reg CF offering cannot be resold for one year except in a few narrow cases. Securities bought in a Reg A+ offering are not restricted at all, but being allowed to sell is not the same as having someone to sell to. For most private companies there is no market, and there may not be one for years. The question "when can I sell?" will come up in every campaign, and the answer has to be the same in the comments, the ads, and the offering documents.

We are marketers, not lawyers. What follows is how these rules shape the campaign, not advice on what a particular company may say. Your securities counsel should approve how your offering describes resale and liquidity.

The Reg CF one-year restriction

Rule 501 of Regulation Crowdfunding says a security bought in a Reg CF offering may not be transferred by the purchaser for one year from the date the securities were issued. There are four exceptions. The security may be transferred:

• back to the issuer;
• to an accredited investor;
• as part of an offering registered with the SEC;
• to a member of the purchaser's family, or a trust controlled by the purchaser or created for the benefit of a family member, or in connection with the purchaser's death or divorce.

That is the whole list. An investor who needs cash in month four generally cannot list the shares anywhere and sell them to the public. A private sale to an accredited buyer is allowed by the rule, but finding that buyer is the investor's problem, and the company's own transfer rules and its transfer agent still apply.

After the year ends, the federal restriction lapses. That does not create a market. It only removes one obstacle to one.

What it means for the campaign: the one-year rule is a fact the investor should hear before they invest, not after. It belongs in the FAQ on the offering page, stated plainly. "You will not be able to sell these shares for at least one year, and possibly much longer" is a sentence that costs a few conversions and saves a great deal of anger later.

Reg A+ shares are unrestricted, and still hard to sell

Reg A+ is the exemption people mean when they talk about a public offering without a registration. Shares sold under it are not restricted securities. A buyer may resell them the day after the offering closes, as far as federal securities law is concerned.

In practice, three things stand in the way.

There is no buyer. A company whose stock is not listed on an exchange has no order book. Nobody is quoting a price. An investor who wants out has to find another person who wants in.

State law reaches secondary trades. Tier 2 of Reg A+ preempts state registration only for offers and sales to qualified purchasers, meaning the people buying in the offering itself; blue-sky-preemption-in-reg-a covers what that does and does not cover. Resales by investors fall outside that preemption, so state blue sky law can still apply to a secondary trade. Whether a particular trade needs a state exemption is a question for counsel or the broker handling it.

The company may have its own limits. Bylaws, shareholder agreements, rights of first refusal, and transfer agent procedures can all add steps. Many companies sell a class of stock with no voting rights and specific transfer terms. Read what was sold before describing what can be done with it.

What it means for the campaign: "freely tradeable" is a legal description, not a promise of liquidity. Do not let a marketing line turn one into the other. "Reg A+ shares are not restricted" is accurate. "You can sell anytime" is not, because nobody can guarantee a buyer.

What secondary marketplaces actually are

Several platforms offer secondary trading for shares from crowdfunding and Reg A+ offerings. They are not stock exchanges. Most are alternative trading systems, which Regulation ATS requires to register as broker-dealers, and they are overseen by FINRA and the SEC. Some are run by the same firms that run the funding portals or broker-dealers that hosted the offering.

A few honest points about them:

• The company usually has to opt in. Most platforms require the issuer to agree, provide information, and work with its transfer agent before its shares can trade there.
• Trading is thin. A listing makes a sale possible. It does not make one likely. Many listed securities trade rarely, at prices that move a lot on small orders.
• Investors may need an account with that broker, and the broker decides which investors and which states it will serve.
• Disclosure keeps mattering. Buyers on a secondary market rely on what the company has published. A company that falls behind on its annual reports makes its own shares harder to trade.

Whether a company should make its shares available on one of these venues is a question with legal, tax, cap table, and investor relations consequences. It is a decision for the board with securities counsel, not a feature to announce because investors asked.

What it means for the campaign: if the company has a real, signed arrangement with a secondary venue, it may be worth saying so, accurately and with counsel's wording. If it is "exploring options," say nothing. A half-promise of liquidity is the kind of statement that reads as a material claim once it is in an ad.

Liquidity is a material topic, so treat it like one

Everything a company says while selling securities is held to the antifraud standard. Statements about future liquidity are some of the riskiest because they are about the future and they are about money. Three lines we would cut on sight:

• "Get in before the IPO." It implies an IPO is coming. See mini-ipo-is-a-misnomer-for-reg-a.
• "Shares will be tradeable after the raise." It implies a market, not just a legal status.
• "Early investors have the chance to cash out." It implies an exit nobody can promise.

The rule we use is simple. Marketing may say what the offering documents say, in plainer words. It may not say anything more hopeful. If the offering circular or Form C lists illiquidity as a risk factor, the campaign does not get to imply otherwise. advertising-rules-by-exemption covers the wider rules for each exemption.

What to tell an investor who asks "when can I sell?"

The question will arrive in comments, emails, and support chats. Write the answer before the offering opens, have counsel approve it, and give it to everyone who talks to investors. A good answer has four parts:

1. The legal rule for this offering. For Reg CF, a one-year restriction with narrow exceptions. For Reg A+, no federal restriction.
2. The practical reality. There is no public market for these shares today, and there may never be one.
3. What the company has actually committed to, if anything. A secondary venue arrangement, a buyback policy, or nothing at all. Only what is real and documented.
4. Where to read more. The risk factors in the offering documents.

What it should not include: guesses about an acquisition, a listing date, or a valuation at exit. An investor asking "when can I sell?" is often really asking "is this a good investment?", and that is a question the company's marketing cannot answer for them. moderating-comments-during-a-raise covers how to handle the public version of this conversation.

Why this matters after the raise

Investors who were told the truth about liquidity stay patient. Investors who were given a hopeful impression become the loudest voices in the comment section of the next raise. The company that plans to come back to its investors for more money, covered in raising-again-from-your-investors, needs the first group, not the second. Regular, plain reporting after the close does more for investor patience than any marketplace listing. reg-a-plus-ongoing-reporting and cap-table-thousands-of-investors cover the work that follows.

This is general information, not legal advice. What your company may say about resale and liquidity, and whether it should arrange secondary trading, are questions for your own securities counsel.

FAQ

Can I sell Reg CF shares before one year?

Only in the cases Rule 501 allows: back to the issuer, to an accredited investor, as part of an SEC-registered offering, or to a family member or family trust, including transfers on death or divorce. Otherwise the shares cannot be transferred until one year after purchase.

Are Reg A+ shares restricted securities?

No. Securities sold under Reg A+ are not restricted under federal securities law and may be resold. Whether there is a buyer, and whether state law reaches a particular secondary trade, are separate questions.

What is a secondary marketplace for crowdfunding shares?

Usually an alternative trading system run by a registered broker-dealer, where holders of private company shares can post and accept orders. The issuer typically has to agree before its shares trade there, and trading in most securities is infrequent.

Can a company promise investors liquidity in its marketing?

It should not. Nobody can guarantee a buyer or an exit, and statements about future liquidity are held to the antifraud standard like any other claim in an offering. Marketing should repeat what the offering documents say about resale, in plainer words, and nothing more hopeful.