Crowdfunding Vehicles vs Custody For Reg CF Explained

When companies raise capital under Reg CF, they face a structural challenge: how to manage large numbers of investors without triggering unintended regulatory or operational consequences.

Platforms address this challenge by offering different ownership structures that shape how investors appear on the cap table and how regulatory thresholds are managed. 

In this article, we will compare crowdfunding vehicles (SPVs) to custody/nominee structures, explore their benefits and drawbacks, and shed some light on how to choose the right model. 

Crowdfunding vehicles vs Custody/Nominee structures

Reg CF platforms use two main methods to list investors on a company’s cap table:

• Crowdfunding vehicles
• Custody / Nominee structures. 

To understand why it happens, platform builders need to understand Section 12(g) of the Securities Exchange Act¹.

Section 12(g) says that a private company may be required to start public-company style reporting² if it:

• Has $10 million or more in assets, and
• Has equity held by 2,000 total shareholders or 500 non-accredited shareholders.

For most startups, crossing this line is a problem. Public reporting is expensive, complex, and companies usually don’t want to deal with it before they go public. The use of one or both of the listing models helps to solve this problem. They both help to keep cap tables manageable and show how investors are counted. However, there are significant differences between them in how the ownership is organized.

Crowdfunding Vehicles (a type of SPV / CF Vehicles)

A crowdfunding vehicle is a separate legal entity, usually an LLC, created to group many investors together. 

Instead of listing hundreds or thousands of individual investors on the company’s cap table, the startup lists just one entity. That single entity represents all the individual investors³ behind it. Investors do not hold shares in the startup directly. Instead, they own membership interests in the crowdfunding vehicle.

The vehicle itself holds the shares in the issuing company and appears on the company’s cap table as one single shareholder. Each investor’s economic rights, such as profits or exit proceeds, are allocated in proportion to their investment.

This structure is a type of special purpose vehicle (SPV) created specifically for Reg CF offerings. Under SEC rules, as long as all investors in the vehicle are natural persons¹, the vehicle is treated as one holder of record. 

As a result, the startup can raise money from a large group of retail investors while keeping its shareholder count low. This is why SPVs are often seen as the most straightforward way to reduce Section 12(g) risk under Reg CF.

Custody / Nominee Structures

Under a custody or nominee structure, investors own their shares directly. So, investors keep full economic ownership. But instead of listing every investor on the company’s cap table, the company lists one custodian or nominee as the official holder of record on their behalf. According to Section 12(g)¹, it is allowed for a custodian to be a single holder if it holds shares of multiple retail investors. 

The custodian holds the shares for investors and takes care of basic administration, such as processing transactions and handling votes or other company actions. 

Custody models are newer and less clearly established in Reg CF, this is why they carry more regulatory judgment risk. For example, if regulators believe the custody structure exists mainly to avoid Section 12(g)³, they may choose to look past the custodian and count the individual investors instead. This is why it creates uncertainty that does not exist with SPVs.

How platforms use these models in practice

Reg CF platforms take different approaches. Each one chooses an ownership model based on its product strategy, target investors, and how it manages regulatory risk.

AngelList: SPV-first approach

AngelList⁴ was built around syndicated angel and venture investing. There, SPVs are commonly used to bring many investors into a single deal. While AngelList does not operate as a Reg CF platform, it serves as a useful reference point for how SPVs are used in private markets to consolidate investors and simplify ownership structures.

On the platform, investors are grouped into SPVs instead of being listed one by one. Each SPV appears as a single shareholder on the company’s cap table. For startups, this keeps ownership simple and avoids mess as more investors join.

This approach also helps with future fundraising. Venture funds and institutional investors prefer clean cap tables, and AngelList’s SPV model matches what they expect to see in later funding rounds.

Republic: Mixed model

Republic⁵ takes a hybrid approach. Instead of focusing on one structure, it supports different models depending on the company’s goals.

• Crowdfunding vehicles are used when a company wants a clean cap table and lower long-term reporting risk. This works well for startups that expect follow-on funding and want to avoid shareholder-count issues as they grow.
  
• Custody or intermediary structures are used when direct investor ownership or future liquidity is more important. These setups can better support secondary trading and investor flexibility.

By offering both options, Republic can support a wider range of companies and deal types. 

StartEngine: Custody-focused model

StartEngine⁶ primarily uses a custody-based ownership model for Reg CF offerings. Under this structure, investors purchase shares directly in the issuing company, while a regulated custodian or nominee is listed as the holder of record on the company’s cap table on behalf of those investors.

This approach is designed to keep cap tables manageable while preserving direct beneficial ownership for investors, and it can support features such as centralized administration and, where available, secondary trading infrastructure. 

At the same time, custody-based models rely on regulatory interpretation regarding how beneficial owners are counted for reporting thresholds, which makes their implementation more dependent on legal structuring and ongoing compliance oversight.

How to choose the right model for your investment platform

For platform builders and investment companies, there is no single “best” ownership model. It depends on the platform’s strategy and how the platform expects issuers and investors to evolve. Here are some details to consider.

Tackle regulatory certainty

Crowdfunding vehicles (SPVs) reduce Section 12(g) risk. They offer clearer, more predictable treatment as a company scales and adds investors. This is why platforms focused on follow-on funding and institutional investors often choose SPVs or crowdfunding vehicles.

Improve operational simplicity

Custody models usually involve fewer legal entities and a simpler setup. Compliance and regulatory risk are carefully managed.

Consider liquidity options

Custody structures connect more easily with secondary markets. This can attract investors earlier or offer more liquidity. 

Define investor experience

SPVs simplify ownership for issuers but come with limitations for investors. Custody preserves direct share ownership but adds the complexity of a custodian relationship.

How to launch a crowdfunding platform with LenderKit

LenderKit is a white-label investment and crowdfunding software for launching investment platforms that focus on Reg CF, Reg A, Reg D and Reg S fundraising.

The software offers capabilities for compliance-ready investor onboarding, capital raising, integrations-support and platform management. 

If you’re looking to start a crowdfunding platform in the US, don’t hesitate to reach out to us for a demo, and to discuss your platform requirements.