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RULE §139.25Intrastate Crowdfunding Exemption
Repealed Date:08/25/2019

(a) General. The State Securities Board, pursuant to the Texas Securities Act (Act), §5.T, exempts from the securities registration requirements of the Act, any offer or sale of securities of an issuer through a registered general dealer or a registered Texas crowdfunding portal, provided that all offers and sales made pursuant to the offering are made to Texas residents, completed solely within this state, and all the requirements of this section are satisfied.

(b) Issuer.

  (1) 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 and:

    (A) At least 80% of the issuer’s gross revenues during its most recent fiscal year prior to the offering are derived from the operation of a business in Texas;

    (B) At least 80% of the issuer’s assets at the end of its most recent semiannual period prior to the offering are located in Texas;

    (C) The issuer will use at least 80% of the net proceeds of this offering in connection with the operation of its business within Texas; and

    (D) The principal office of the issuer is located in Texas.

  (2) The issuer is not, either before or because of the offering:

    (A) A company, that engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities;

    (B) Subject to the reporting requirements of the Securities and Exchange Act of 1934, §13 or §15(d), 15 U.S.C. §78m and §78o(d); or

    (C) a company that has not yet defined its business operations, has no business plan, has no stated investment goal for the funds being raised, or that plans to engage in a merger or acquisition with an unspecified business entity.

(c) Coordination with federal securities laws. Securities offered in reliance on the exemption provided by this section must also meet the requirements of the federal exemption for intrastate offerings in the Securities Act of 1933, §3(a)(11), 15 U.S.C. §77c(a)(11), and Securities and Exchange Commission Rule 147, 17 CFR §230.147.

(d) Offering. The offering must be made exclusively through an Internet website operated by a registered general dealer or registered Texas crowdfunding portal. All consideration received for all sales of the securities in reliance on this exemption shall not exceed $1 million in a 12-month period. This amount is reduced by the aggregate amount received for all sales of securities by the issuer in another offering that does not take place prior to the six month period immediately preceding or after the six month period immediately following any offers or sales made in reliance upon this section.

(e) Individual investments. The issuer will not accept more than $5,000 from any single purchaser unless the purchaser is an accredited investor as defined in §107.2 of this title (relating to Definitions). The issuer must have a reasonable basis for believing that the purchaser of a security under this section is a Texas resident and, if applicable, an accredited investor.

(f) Escrow or segregated account to safeguard investor and issuer funds.

  (1) All payments for purchases of securities offered under this section are directed to and deposited in an escrow account or a segregated account, if a segregated account is permitted under paragraph (2) of this subsection. The payments must be held in an escrow account or a segregated account until the aggregate capital raised from all purchasers is equal to or greater than the minimum target offering amount specified in the disclosure statement as necessary to implement the business plan. Investors will receive a return of all their subscription funds if the target offering amount is not raised by the time stated in the disclosure statement.

  (2) A segregated account may be used in lieu of an escrow account if the maximum offering amount is $1 million or less.

  (3) For purposes of this subsection:

    (A) An "escrow account" is one administered by an independent escrow agent who is a bank or other depository institution.

    (B) A "segregated account" is one established by a registered general dealer or a Texas crowdfunding portal pursuant to a written agreement ("Account Agreement") with the issuer and provides that the registered general dealer or portal will act on behalf of the issuer and investors to hold funds raised from investors in a specific securities offering until such time as those funds can be disbursed in accordance with paragraph (1) of this subsection. The Account Agreement must identify the bank or other depository institution and account number where the funds will be held. All signatories on the segregated account must be persons registered with the Securities Commissioner.

  (4) The escrow account or segregated account must be in a bank or other depository institution located in Texas and organized and subject to regulation under the laws of the United States or under the laws of Texas.

  (5) A separate account must be set up for each securities offering in which a segregated account is used in lieu of an escrow account. The Account Agreement entered into in connection with a segregated account, shall include requirements that the dealer or portal must, and the account shall be administered in accordance with the following principles requiring the dealer or portal to:

    (A) be responsible for prudent processing, safeguarding, and accounting for funds entrusted to it by investors and the issuer;

    (B) act to the advantage of and in the best interests of the investors and the issuer; and

    (C) ensure that all requirements of the Account Agreement between the portal and issuer are met before funds are disbursed from the segregated account.

  (6) The issuer shall inform all prospective purchasers and investors if a segregated account is to be used to hold investor payments. Additionally, a portal must make the disclosures mandated by §115.19(c)(3).

(g) Communications.

  (1) All communications between the issuer, prospective purchasers, or investors taking place during the offer of securities pursuant to this section must occur through the Internet website of the registered general dealer or Texas crowdfunding portal. During the time the offering appears on the Internet website, the website must provide channels through which potential purchasers and investors can 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 Internet website.

  (2) Notwithstanding the foregoing, 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 Internet website are limited to persons that are Texas residents.

(h) Internet website.

  (1) The Internet website operated by a registered general dealer or the Texas crowdfunding portal must meet the following requirements:

    (A) the website must contain a disclaimer that reflects that access to securities offerings on the website is limited to Texas residents and offers and sales of the securities appearing on the website are limited to persons that are Texas residents;

    (B) an affirmative representation by a visitor to the Internet website that the visitor is a resident of Texas is required before the visitor can view securities-related offering materials on the website;

    (C) evidence of residency within Texas is required before a sale may be made to a prospective purchaser. An affirmative representation made by a prospective purchaser that the prospective purchaser is a Texas resident and proof of at least one of the following would be considered sufficient evidence that the individual is a resident of this state:

      (i) a valid Texas driver license or official personal identification card issued by the State of Texas;

      (ii) a current Texas voter registration; or

      (iii) general property tax records showing the individual owns and occupies property in this state as his or her principal residence; and

    (D) prior to offering an investment opportunity to residents of Texas and throughout the term of the offering, the registered general dealer or registered portal shall give the Securities Commissioner access to the Internet website.

  (2) Information about the issuer and the offering posted on the Internet website, entry onto which is conditioned upon evidence of Texas residency, operated by the registered general dealer or registered portal consists of:

    (A) a copy of the disclosure statement required by subsection (i) of this section;

    (B) a summary of the offering, including:

      (i) a description of the entity, its form of business; principal office, history, business plan, and the intended use of the offering proceeds, including compensation paid to any owner, executive officer, director, or manager;

      (ii) the identity of the executive officers, directors, and managers, including their titles and their prior experience and the identity of all persons owning more than 20% of the ownership interests of any class of securities of the company; and

      (iii) a description of the securities being offered and of any outstanding securities of the company, the amount of the offering, and the percentage ownership of the company represented by the offered securities.

  (3) The information on the Internet website required by paragraph (2) of this subsection must be made available to the Commissioner and potential investors for a minimum of 21 days before any securities are sold in the offering.

(i) Disclosure statement. A disclosure statement must be made readily available and accessible to each prospective purchaser at the time the offer of securities is made to the prospective purchaser on the Internet website. The disclosure statement must contain all of the following:

  (1) Material information and risk factors. All information material to the offering, including, where appropriate, a discussion of significant factors that make the offering speculative or risky. Guidance on the categories of information to include can be found by reviewing the small business offering information provided by the Texas State Securities Board on its Internet website. Topics to be addressed include, but are not limited to:

    (A) general description of the issuer’s business;

    (B) history of the issuer’s operations and organization;

    (C) management of the company and principal stockholders;

    (D) how the proceeds from the offering will be used;

    (E) financial information about the issuer;

    (F) description of the securities being offered; and

    (G) litigation and legal proceedings.

  (2) Disclosures. The issuer shall inform all prospective purchasers and investors of the following:

    (A) There is no ready market for the sale of the securities acquired from this offering; it may be difficult or impossible for an investor to sell or otherwise dispose of this investment. An investor may be required to hold and bear the financial risks of this investment indefinitely;

    (B) The securities have not been registered under federal or state securities laws and, therefore, cannot be resold unless the securities are registered or qualify for an exemption from registration under federal and state law.

    (C) In making an investment decision, investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved; and

    (D) No federal or state securities commission or regulatory authority has confirmed the accuracy or determined the adequacy of the disclosure statement or any other information on this Internet website.

  (3) Financial statements. Issuers must provide current financial statements certified by the principal executive officer to be true and complete in all material respects. If the issuer has audited or reviewed financial statements, prepared within the last three years, such financial statements must also be provided to investors.

(j) Notice filing. Before using any publicly available Internet website in an offering of securities in reliance on this section, the issuer shall file with the Securities Commissioner:

  (1) Form 133.17, Crowdfunding Exemption Notice;

  (2) the disclosure statement, required by subsection (i) of this section;

  (3) the summary of the offering, required by subsection (h)(2)(B) of this section; and


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