McBride Law Blog

An Easy Way for Texas Companies To Raise Money? A Discussion of the Texas Crowdfunding Exemption (Part 5)

McBride Law Blog

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Photo by Jack / CC BY 2.0

Photo by Jack / CC BY 2.0

Texas Crowdfunding Portal Registration and Activities (in Detail).

Simplified/Streamlined Registration Process. The simplified registration process for TCPs, which we discussed previously, is designed so that TCPs are subject to fewer regulatory requirements than general securities dealers, because they are limited in what they can do.[1]

No Investment Advice. Of note, a TCP is prohibited from offering investment advice or recommendations, so in listing issuers on its platform, it is important for the TCP not to provide an implicit endorsement or recommendation.[2] For example, a TCP may select or highlight particular offerings based on such objective criteria as the type of securities being offered (e.g., common or preferred stock), the geographic location of the issuer, the industry or business segment of the issuer, or the number or amount of investment commitments.[3] A TCP may not, however, highlight an issuer or offering based on the riskiness or advisability of investing, as such an assessment necessarily involves the exercise of judgment indicative of the giving of investment advice.[4]

Advising Issuers on Offering Documents. A TCP is permitted to advise an issuer on the format or content of the issuer’s offering without being deemed to provide investment advice, including reviewing and commenting on the issuer’s offering documentation.[5] For instance, a TCP may provide pre-drafted templates or forms for an issuer to use in its offering that would help it comply with its proposed disclosure obligations or offer advice about the types of securities the issuer can offer, the terms of those securities, and the procedures and regulations associated with crowdfunding.[6]

Website Access. The TSSB explains that the website would be structured to have multiple layers of access, depending on the Texas residency requirements: (1) Tier I Access would be the portion viewable by the general public, which must contain appropriate disclaimers and restrictive legends making it clear that the offering is limited to Texas residents; (2) Tier II Access would be the portion restricted to persons who have affirmatively represented that they are Texas residents, which would contain offering materials; and (3) Tier III Access would be the area for purchasers, with appropriate (re)verification procedures for Texas residency and accredited status.[7]  A TCP is required to maintain a record of the verification methods.

Communication Among Investors. As for communication channels, the TSSB explains that one of the integral elements of crowdfunding is to have access to communications with others to tap into the “wisdom of the crowd.”[8] The TCP has flexibility in setting up this mechanism and may also establish guidelines as to the length, size, or propriety of individual postings in the communication channels (e.g., removing obscene, illegal, or irrelevant communications, which, by the way, must also be retained as part of the TCP’s recordkeeping obligations).[9]

This post was a part of a multi-part series on Texas crowdfunding exemption.  You can find the other posts by searching our blogs at www.mcbrideattorneys.com. If you have any questions about the content of this blog or other securities law issues not discussed here, please contact us.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

About the Author

Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C., which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. R. Shawn can be contacted at: (214) 418-0258; shawn.mcbride@rsmlawpllc.com, or www.mcbrideattorneys.com.

[1] TSSB, Information for Texas Crowdfunding Portals, https://www.ssb.texas.gov/texas-securities-act-board-rules/texas-intrastate-crowdfunding/information-texas-crowdfunding (last visited Oct. 29, 2015).

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

Facebooktwittergoogle_pluslinkedinmailAbout the Author Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can email or call (214) 418-0258.

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