Frequently Asked Questions about Texas Intrastate Crowdfunding

Answers from the Texas State Securities Board

questions and answers texas intrastate crowdfunding If you’ve been following our blog recently you know that Texas intrastate crowdfunding has been our main topic of interest. In addition to the Texas Crowdfunding Seminar taking place on Wednesday, where our own CEO Vicent Petrescu will be speaking, we just finished a short blog series on the Texas intrastate crowdfunding disclosure statement. Throughout the past week we received a variety of questions from our readers that can actually been answered on the Texas State Securities Board website. Apparently a lot of Texas entrepreneurs and investors have the same questions – which is a good thing!

We browsed the FAQ’s on the Texas State Securities Board website and found several that were asked by our audience. So, to make things easier for everyone, we are going to list some of the Q&A’s right here for you.  These words are straight from the TSSB so you can rest assured they are the true and legitimate answers to the questions being asked.

Let’s see if these answer some of your own questions about Texas intrastate crowdfunding!

QUESTION:                                    

Can an officer, director, or control person of an issuer be a non-Texas resident?

ANSWER:

Yes. Although the issuer itself must be a Texas entity, residency is not required for the officers, directors, or control persons of the issuer. However, at least 80% of the issuer’s gross revenues must be derived from the operation of a business in Texas, at least 80% of the issuer’s assets must be located in Texas, at least 80% of the net proceeds of the offering must be used in connection with the operation of a business within Texas, and the issuer must have its principal office in Texas. See Rule 139.25(b)(1). If all or many of the issuer’s principals are not located in Texas, it may be difficult for issuer to meet these additional requirements.

QUESTION:

Can an officer, director, or control person of a Texas crowdfunding portal (TCP) be a non-Texas resident?

ANSWER:

Yes. The TCP must be an entity incorporated or organized under the laws of Texas, but there is no residency requirement imposed upon its principals. See Rule 115.19(a)(1).

QUESTION:

Can a control person of an issuer or TCP be an entity?

ANSWER:

Yes. Section 4.B of the Texas Securities Act (TSA) defines the term “person” to include not only natural persons but entities such as a corporation, partnership, limited partnership, association, company, firm, syndicate, or trust, among others.

QUESTION:

May an issuer offer and sell its securities on multiple TCPs simultaneously if the $1 million cap in Rule 139.25(d) is observed?

ANSWER:

No. One of the characteristics of crowdfunding is fostering communications between the issuer, prospective purchasers, and investors to tap into the “wisdom of the crowd.” Accordingly, Rule 139.25(g) requires all communications between the issuer, prospective purchasers, and investors to occur thorough the communications channel on the general dealer’s or TCP’s website. These communications must be visible to all of those with access to the offering materials on the website. If multiple websites or multiple TCPs are used for the offering, all of the communications will not be visible to all of the prospective purchasers and investors so would not meet the requirements of the rule.

texas intrastate crowdfunding QUESTION:

May a non-accredited investor invest up to $5,000 in more than one issuer?

ANSWER:

Yes. A non-accredited investor may invest up to $5,000 in multiple securities offerings conducted by different issuers relying upon the Rule 139.25 exemption. However, a non-accredited investor is limited to a lifetime cap of $5,000 investment with any one particular issuer using the Rule 139.25 exemption for the offering(s). See Rule 139.25(e). It should be noted that an existing shareholder may be able to purchase additional securities (exceeding the $5,000 cap) from an issuer in an offering conducted under a different exemption from securities registration or in a registered offering.

QUESTION:

Can an issuer close an offering prior to the expiration of the 21-day posting requirement?

ANSWER:

No. An issuer’s disclosure statement and offering summary must be made available on the TCP or general dealer’s Internet website for 21 days before any securities can be sold in the offering. See Rule 139.25(h)(3). A sale is considered to have occurred if the prospective purchaser enters into a binding agreement to purchase the securities. However, an issuer could, through the website, accept nonbinding solicitations of interest prior to the expiration of the 21-day posting requirement and grant those interested persons priority when the securities can legally be sold.

The 21-day waiting period was designed to foster communications between the issuer and prospective purchasers. See answer 4 for further discussion on this point.

QUESTION:

What happens if a non-Texas resident is permitted to invest in a Rule 139.25 offering?

ANSWER:

Out-of-state sales will cause the issuer to lose the federal exemption for intrastate offers (SEC Rule 147) because it has engaged in interstate commerce. This means that the issuer will be subject to federal action for violating federal securities laws.

Furthermore, as compliance with SEC Rule 147 is a condition to claiming the Rule 139.25 exemption, the issuer will also lose the Texas crowdfunding exemption. The issuer can, however, make a rescission offer per Section 33 of the TSA to limit its civil liability. Such a rescission offer must be made to all investors in the non-exempt offering, not just the out-of-state ones.

Were we able to answer all of your questions today? The truCrowd team is always ready to assist you so please feel free to contact us at any time. We understand Texas intrastate crowdfunding may be confusing and offer our expert wisdom and advice to everyone.

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

Posted in crowdfunding, Crowdfunding Advice, Entrepreneurs, Equity Crowdfunding, equity crowdfunding law, Intrastate Crowdfunding, Investment Advice, Investors, Start-ups, Uncategorized

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