Texas Intrastate Crowdfunding Disclosure Statement Conclusion

Today’s Topic: Other Material Information

intrastate crowdfunding texas disclosure statementCongratulations! You’ve made it to the conclusion of our Texas Small Business Offering Guide to Disclosure blog series. Our last blog covered the extensive general material information  the Texas State Securities Board will require from all prospective issuers. The TSSB has stated several times it will be running a clean and professional intrastate equity crowdfunding program, so the amount of information they demand is no surprise. In the end, all of this writing and fact-gathering and will help you know more about your company and give you a clearer vision of your goals.

The final leg of the blog series will cover the “other material information” you will be required to submit. Both federal Title III and Texas intrastate equity crowdfunding rules are very strict when it comes to disclosing the risks involved with equity crowdfunding. At truCrowd we prominently display our Risk Warning and fulfill our duties as a funding portal, and it appears the TSSB wants this type of information from issuers as well. One of the main concerns of legislators is that some non-accredited investors will have no idea of the risks before they pledge. All of the following requested information is precautionary and meant to help your future investors, so make sure you read it thoroughly and understand what will be required of you.

Please enjoy the last topic of the Texas Small Business Offering Guide to Disclosure:

Other Material Information

(a) Escrow (See 139.25(f)) – The identity and location of the financial institution maintaining an escrow account for the offering and a description of the escrow requirements for the offering should be disclosed. The Texas crowdfunding exemption requires that the offering proceeds be held in an escrow account with a bank or other depository institution located in Texas and held until the aggregate capital raised from all purchasers is equal to or greater than the minimum target offering amount specified in the disclosure statement. The rules also require that investors receive a return of all their subscription funds if the target offering amount is not raised by the time stated in the disclosure statement.

(b) Taxation Issues – The issuer should disclose material aspects of the federal income tax treatment of the issuer and the impact of this treatment on investors.

(c) Limitation of liability – Section 33.N of the Texas Securities Act limits the liability of certain individuals involved in small business offerings, as defined by that statute. If the limitation applies, the maximum amount that may be recovered against a person in a civil action brought under Section 33 of the Texas Securities Act is three times the fee paid by the issuer to the person for the services related to the offer of securities. The limitation does not apply if the trier of fact finds the person engaged in intentional wrongdoing in providing the services.

A “small business issuer” is one that has annual gross revenues not exceeding $25 million and that does not have equity securities registered or required to be registered with the U.S. Securities and Exchange Commission. The limitation applies to offers and sales of a small business issuer’s securities that, in an aggregate amount, do not exceed $5 million and a person (including an attorney, accountant, consultant, or the firm of the attorney, accountant, or consultant) who has been engaged to provide services relating to such offers and sales of securities.

To invoke the liability limitation, the small business issuer offering the securities must provide a written disclosure of the limitation of liability created by Section 33.N to the prospective buyer and have received a signed acknowledgment from the prospective buyer that the disclosure was provided. This process should be coordinated with the registered portal or registered dealer handling the offering.

texas intrastate crowdfunding reporting (d) Reporting – The issuer should disclose what information about the company’s operations will be provided to existing securities holders after the offering of securities has been completed and when that information will be provided. The Texas Business Organizations Code and other provisions in state law may govern the timing and nature of reports required to be submitted to investors.

The issuer should consult with legal counsel to ensure that appropriate disclosures are made and that arrangements are in place to comply with applicable reporting requirements.

(e) Pricing – Consideration should be given to disclosure of the factors used to determine the price of the securities in the offering. Factors may include whether the price was determined arbitrarily or was based on earnings per share, net tangible assets per share, the price previously paid for the issuer’s securities by others, or independent appraisal based on sales of comparable property.

(f) Dilution – If applicable, the issuer should disclose how a primary or secondary offering or distribution of securities will dilute an investor’s ownership percentage of the company or reduce the value of securities on a per share basis immediately after an offering.

Dilution reduces shareholders’ percentage of ownership and can have a diminishing effect on the book value of the common stock, the earnings per share, and the shareholders’ ultimate voting power. This is especially the case when the company issues shares to its principal stockholders at prices substantially below the offering price to new shareholders; when holders of options and warrants exercise their rights to purchase additional shares at lower prices than what they paid originally further diluting the valuation on a per share basis; or when debt or preferred stock is converted into additional shares of common stock at prices below the current offering price.

Dilution represents the difference between the current offering price and the net tangible book value per share immediately after a securities offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets of the company.


During the period in which the offering appears on the website of the registered Texas crowdfunding portal or general securities dealer, the website must provide a mechanism for potential purchasers and investors to communicate with one another and with representatives of the issuer about the offering. These communications must be visible to all those with access to the offering materials on the portal or dealer’s website. See 139.25(g)(1).

These communications may serve as a supplement to, but not as a substitute for, the Summary of the Offering and Disclosure Statement required by the Texas crowdfunding exemption rules.

The issuer may distribute a notice within Texas limited to a statement that the issuer is conducting an offering, the name of the registered general dealer or portal through which the offering is being conducted, and a link directing the potential investor to the dealer or portal’s Internet website. The notice must contain a disclaimer that reflects that the offering is limited to Texas residents and offers and sales of the securities appearing on the website of the registered Texas crowdfunding portal or general securities dealer are limited to persons who are Texas residents.(See 139.25(g)(2)).

If you have any questions on today’s blog or the previous three, please feel free to contact us and a truCrowd representative will be happy to assist you.

Thank you for reading and please leave your questions and comments below!

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