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An Easy Way for Texas Companies To Raise Money? A Discussion of the Texas Crowdfunding Exemption (Part 4)

December 22, 2015

Texas Crowdfunding Portal Registration and Activities.

As we mentioned previously, an offering conducted under the crowdfunding exemption must be made exclusively through an Internet website operated by a registered general dealer or registered TCP.

Local Character. Just like crowdfunding issuers, a TCP must be an entity formed and authorized to do business in Texas.[1]  A TCP should be physically located in and operate exclusively within Texas.[2] Moreover, a TCP must be engaged exclusively in intrastate offers and sales of securities in Texas and limit its activities to operating an Internet website utilized to offer and sell securities under the Texas crowdfunding exemption, without operating or facilitating a secondary market in securities.… Read the rest

An Easy Way for Texas Companies To Raise Money? A Discussion of the Texas Crowdfunding Exemption (Part 3)

December 17, 2015

How Should the Offering Be Conducted?

Must Use a website. An offering conducted under the crowdfunding exemption must be made exclusively through an Internet website operated by a registered general dealer or registered TCP.[1] Such website must meet the following requirements:

  • A disclaimer that access to the website and offers and sales of the securities are limited to Texas residents;
  • An affirmative representation by a visitor to the website that the visitor is a Texas resident before they can view information on the website;
  • Evidence of Texas residency before a sale can be made to a prospective purchaser, e.
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An Easy Way for Texas Companies To Raise Money? A Discussion of the Texas Crowdfunding Exemption (Part 2)

December 12, 2015

Who Is Eligible?

Texas Formation. Texas crowdfunding exemption is only available if the issuer is a Texas entity that has filed a certificate of formation with the Texas Secretary of State and is authorized to do business in Texas.[1] This means that sole proprietor, general partnerships, or joint ventures would not be eligible to use the exemption, as those types of businesses do not file a certificate of formation, nor would companies whose certificate has been terminated or forfeited for failure to file a required report, to pay franchise tax or penalty, or to maintain a registered office or registered agent.… Read the rest

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

December 8, 2015

In our previous blog series titled “Crowdfunding: Is It Right for My Business?”, we discussed Title III of the JOBS Act, popularly known as the “CROWDFUND Act (Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012),” which would exempt crowdfunded securities from the federal registration requirement. On October 30, 2015, the Securities and Exchange Commission (‘SEC”) finally voted to adopt the final rules to implement the law (see our previous blog titled “SEC Votes To Adopt Federal Crowdfunding Rules”).… Read the rest

Is It Time To Do Crowdfunding To Raise Money?: SEC Releases Federal Crowdfunding Final Rules (Part 5)

December 3, 2015

Investor Qualification.

Each time before accepting any investment commitment, an intermediary must have a reasonable basis for believing that the investor satisfies the investment limitations discussed above; in doing so, an intermediary may rely on an investor’s representations concerning the investor’s annual income, net worth, and the amount of the investor’s other investments made under the crowdfunding exemption, unless the intermediary has reason to question the reliability of such representation.[1] An intermediary must also obtain from the investor: (i) a representation that the investor has reviewed the intermediary’s educational materials discussed above, understand that the entire amount of his or her investment may be lost, and is in a financial condition to bear the loss; and (ii) a questionnaire completed by the investor demonstrating the investor’s understanding regarding restrictions on the investor’s ability to cancel an investment commitment, resale restrictions, and risks of loss.… Read the rest

Is It Time To Do Crowdfunding To Raise Money?: SEC Releases Federal Crowdfunding Final Rules (Part 4)

December 1, 2015

Funding Portal Registration.

As expected, a funding portal must register with the SEC by filing a complete Form Funding Portal (to be amended whenever previously submitted information becomes inaccurate) and become a member of a national securities association[1]; a funding portal that is registered this way is exempt from the broker registration requirements.[2] A non-U.S. portal can register, too, but its registration is conditioned upon there being an information sharing arrangement in place between the SEC and the competent regulator in the non-U.S.… Read the rest

Is It Time To Do Crowdfunding To Raise Money?: SEC Releases Federal Crowdfunding Final Rules (Part 3)

November 24, 2015

Intermediaries.

All crowdfunding must be done through an intermediary. No issuer can do crowdfunding directly without hiring one. The Act imposes various requirements on crowdfunding intermediaries.[1] For starters, intermediaries have to register with the SEC as a broker or as a funding portal and become a member of a national securities association.[2] Under the final rules, intermediaries would also have to provide risk disclosures or other investor education materials and ensure that each investor reviews such information and understands the risks.… Read the rest

Is It Time To Do Crowdfunding To Raise Money?: SEC Releases Federal Crowdfunding Final Rules (Part 2)

November 19, 2015

Disclosure Requirements.

Under the final rules, an issuer must file with the SEC and provide to the relevant intermediary and investors a Form C: Offering Statement, prior to the commencement of the offering of securities and amend the same to disclose any material changes, additions or updates.[1] The final rules set forth information that needs to be included in Form C, at times in great detail, as follows:

  • the name, legal status, physical address, and website of the issuer;
  • certain information about directors and officers;
  • information about beneficial owners;
  • description of the business and the anticipated business plan;
  • current number of employees;
  • discussion of the material factors that make the investment speculative or risky;
  • target offering amount and the deadline to reach the target, including a statement that if the sum of the investment commitments does not reach the target, no securities will be sold in the offering, investment commitment will be cancelled, and committed funds will be returned;
  • whether the issuer will accept investments in excess of the target offering amount and, if so, the maximum amount that the issuer will accept and how oversubscriptions will be allocated, such as on a pro-rata, first come-first served, or other basis;
  • a description of the purpose and intended use of the proceeds;
  • a description of the process to complete the transaction or cancel an investment commitment;
  • a statement that if an investor does not reconfirm his or her investment commitment after a material change is made to the offering, the investor’s commitment will be canceled and the committed funds will be returned;
  • the price to the public or the method for determining the price;
  • a description of the ownership and capital structure of the issuer (in some specified detail);
  • certain information about the intermediary;
  • a description of the intermediary’s financial interests in the transaction and in the issuer;
  • a description of any indebtedness of the issuer;
  • a description of exempt offerings conducted within the past three years;
  • a description of certain transactions involving the issuer;
  • a discussion of the issuer’s financial condition;
  • financial disclosure, in the form of either: (1) federal income tax returns and financial statements certified by the principal executive officer (for issuers offering $100,000 or less); (2) financial statements reviewed by an independent public accountant (for issuers offering $100,000 – $500,000); or (3) audited financial statements (for issuers offering over 500K);
  • any disqualifying event that occurred before the effective date of the rules;
  • updates regarding the progress of the issuer in meeting the target amount;
  • where on the issuer’s website investors will be able to find the issuer’s annual report and the date by which such report will be available on the website;
  • whether the issuer or any of its predecessors previously failed to comply with the ongoing reporting requirements; and
  • any other material information.
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All postings are intended to be planning tools to familiarize readers with some of the high-level issues discussed therein. No posting is intended 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.