We had the pleasure of attending a town hall last week regarding the new Texas SEC (Securities and Exchange Commission) intrastate crowdfunding exemptions. This new exemption creates exciting new opportunities for new start-ups and small businesses. The exemption allows qualifying business to raise up to 1 million dollars of funds online from unaccredited investors on approved crowdfunding sites within a 12 month time period. That is correct I said unaccredited investors. This is huge because public solicitation of funds from unaccredited investors (basically the public) is normally prohibited unless a business registers their securities (Stock) with the SEC. In order to protect unaccredited investors from being taken advantage of this new exemption contains several restrictions including, but not limited to:
- companies must be properly incorporated in Texas and domiciled in Texas
- unaccredited investors can only invest up to 5K in each project they invest in and they must be Texas residents
- all crowdfunding must be through one of the approved portals (websites approved by SEC for crowdfunding under the intrastate exemption)
- any business that wishes to raise funds through crowdfunding must pass a bad actor check (a type of background check that ensures you haven’t had any financial, criminal, or fraud related incidents in your history) and must create a qualifying offering document with all of the appropriate disclosures
- most sites will require a valuation, a business plan, and a financial projection
- there is a 21 day waiting period after posting the offering for investor questions/feedback prior to raising funds online. Additionally, each portal has their own requirements and restrictions.
If you think crowdfunding is an opportunity you wish to pursue do not hesitate to contact us with regards to helping you choose the correct entity type, helping you put together your offering/prospectus/disclosures, and advising you on other legal matters that arise relating to crowdfunding. To set up an appointment visit: www.ladeblaw.com or call 214-584-6505, ext101.
For the full text of the new exemptions visit: Texas SEC Crowdfunding Exemption. Note that crowdfunding rules such as these vary from state to state.