Texas to Pass Equity Crowdfunding Rules

By Cynthia Nevels | Senior Editor for Disruptive View

Texas is expected to pass its own rules as it relates to online equity #crowdfunding.

Who’s in charge here?

The Texas State Securities Board regulates the securities industry in Texas. The SSB registers all securities, securities dealers, agents, salesmen and investment advisers in the State of Texas. The SSB offers consumer education for investors on its website and accepts complaints about offers and sales of securities and about securities dealers and investment advisers.

The federal Securities and Exchange Commission (SEC) protects investors by enforcing the federal Securities Act. The SEC website, like that of the SSB, offers a wealth of information for investors and also accepts complaints.

What does intra-state equity Crowdfunding mean?

Section 3(a)(11) of the 33 Act exempts from registration any security that is part of an offering sold only to persons residing within a single state if the company is also doing business in that state. So, as long as a company complies with the federal intrastate exemption, it only needs to be concerned with the state’s crowdfunding rules when conducting a crowdfunding offering; it won’t also have to comply with the federal crowdfunding law.

What does this mean to local small to midsize businesses?

Texas-based businesses now have more options to raise capital. This alternative may lead to new innovations, more jobs and stronger companies that will boost the local economy. Well, at least that’s the hope. Businesses in the oil and gas, real estate, technology, art and entertainment, agriculture, food and hospitality industries may see an uptick in investment through online equity crowdfunding activities. This may be true for those business executives who are savvy enough to recognize the opportunity, create a strategy and execute said strategy. Be sure you are ready to take on the responsibility of managing investors, communicating with investors in a timely fashion, and complying with state and potentially federal requirements.

What should non-accredited investors know before investing in local companies in exchange for equity?

For blue collar “Joe” who happened to have read an article about equity crowdfunding and decided investing in a local business sounds like a good idea, my advice to you is to conduct your own due diligence and research the company’a mission, products and services, marketing strategy, financials and the background of the organizers. If you aren’t sure where to start, call the Texas State Securities Board, your local financial planner that specializes in equity crowdfunding, a crowdfunding attorney, utilize a transparency agency or read posts shared by the crowd – albeit what someone says on a crowdfunding or social media feed should not be your final check before forking over your hard earned money.

Is Texas the first?

No, Texas as is now the 13th state to create its own equity crowdfunding rules and by-pass the JOBS Act. The U. S. SEC has not released or finalized the federal rules and some states see the billion dollar opportunity equity crowdfunding presents and they have decided to take the bull by the horn and jumpstart small business and economic development in their state.

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