What is the StartEngine Compliance process?
Welcome to the StartEngine Compliance process. At this point, you have completed your onboarding and are ready for due diligence review by our Compliance team. Below is a guide explaining what to expect during this process and why it’s needed.
Let’s begin with why StartEngine has a due diligence process.
StartEngine is a registered crowdfunding portal that reports to the Securities and Exchange Commission (“SEC”), and a member of the Financial Industry Regulatory Authority (“FINRA”) and is subject to their rules and regulations. As a funding portal, it is our obligation to ensure that the campaigns hosted on our platform meet the legal requirements of Regulation Crowdfunding.
Why is this process important for you?
As a company raising capital using equity crowdfunding, you are required to disclose certain information in order to comply with the regulation. From a regulatory standpoint, failure to comply with these requirements, or providing insufficient information could result in the company owing all investments back to the investors in the future (even if the money has been spent), or even criminal or civil penalties imposed by FINRA or the SEC.
Companies that have launched their campaigns, and subsequently had a possible violation discovered may also be terminated and have all outstanding investments cancelled and refunded. The company may also be liable to existing investors for any funds already received.
How does the compliance process work once I submit my campaign?
StartEngine Compliance begins once you’ve completed all the information in your campaign on-boarding tabs with your Onboarding Manager and team. Your Onboarding team will assist you in submitting your information to our Compliance team. This process adds the Company to the Review queue, and prompts the StartEngine Compliance Team to conduct a review.
Upon receiving a review submission, a member from the Compliance Team is assigned to your campaign, and goes through every section to review the information and ensure that it’s balanced, factual, and compliant with Title III Regulation Crowdfunding. This process typically includes 1-3 back and forth rounds together.
- If the information you provided is accurate and complete, you will be approved by StartEngine compliance team for preparation of filing to the SEC.
- If any sections are incomplete or non-compliant, the Compliance Team will make a note. Once the Compliance Team has completed the review, you will be notified that your comments are available for review in your onboarding. Once you receive this notification, the current round of StartEngine Review has been completed!
Our goal is to get you through the compliance process in 3 rounds of due diligence, over the course of approximately 2 weeks.
Remember though, if it takes more than 3 rounds, or longer than 2 weeks, don’t get discouraged! This happens frequently, especially when we run into certain issues which tend to prolong the process (see “What typically slows the review process?” below). The number one priority is to make sure your campaign is compliant, even if it takes a bit longer.
This is an ambitious timeline, and in order to be achieved, requires that you, the company, respond to comments and edits promptly (ideally 48 hours), and communicate with your onboarding manager when you do not understand what’s required.
How do I get through review quickly?
- Be sure to read and review all your comments thoroughly:
- Make sure to address each comment to the fullest extent of your ability.
- Reach out to your Onboarding Manager if you do not understand the comment or unable to address the comment with the information you have. Your onboarding manager is a great asset and is there to help you with this process.
- Be responsive:
- Address comments and respond to emails from the Onboarding Manager in a prompt fashion (ideally 48 hours) will make the process go faster, and keep issues fresh as the process continues. The quicker you respond, the faster we can review your campaign
- Utilize outside resources:
- Don’t be afraid to utilize outside legal and accounting resources when needed.
- Understand there may be additional costs associated with using experts. Remember, while there may be additional cost, it may be necessary for you to have your own counsel depending on the nature of your business.
What typically slows the review process?
- Major issues that typically delay the review process:
- Issues with legal documents
- Issues with financial statements
- Late discovery of undisclosed related companies (i.e. parent, subsidiary, previous entity, partner companies with common control)
- Legal documents:
- Companies that want to offer a type of security (i.e. preferred stock), and do not have it already created in their corporate legal documents have additional third party legal and regulatory requirements
- LLC’s are typically not structured for Crowdfunding, and generally require legal assistance
- Financial Statements:
- Raising in excess of $107,000 – requires CPA prepared financials either a review or audit report
- Missing one of the required statements (i.e .- Balance sheet, Statement of Cash flows, Income Statement, Statement of Equity or Financial Notes).
- Statements being prepared incorrectly
- Statements not prepared in accordance with US generally accepted accounting principles (US GAAP)
- Slow response time
- Delaying the order of your Bad Actor Checks:
- These are conducted by a third party service provider, which means if you delay ordering them, that will delay them from being completed
- Failure to utilize outside resources when needed (i.e. attorney, accountant)
- Making substantive changes during the middle of the review process, on previously approved sections without notifying your account manager
- Failure to disclose or the discovery of a related business entity (parent, subsidiary, previous entity, partner companies with common control) late in the review process.
What happens after you are approved by StartEngine Compliance?
Once your company has been approved by StartEngine Compliance, your offering document (the document filed with the SEC) is prepared and sent to you for final sign-off.
Once you sign-off, certifying that the filing document is accurate and complete, the form is filed electronically with the SEC.
Once the form is accepted by the SEC your campaign is ready to go live!