State Regulators Open Crowdfunding for Texas Companies, Residents

The regulations will provide companies a new avenue for raising capital and give most of the state’s adult residents a new opportunity to take an ownership stake in those firms.

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The Texas State Securities Board unanimously approved new rules Wednesday that will let Texas companies raise equity investments through online crowdfunding portals.

The regulations provide a state-level alternative to the long-delayed federal rules for equity crowdfunding. They give Texas companies a new avenue for raising capital and give most of the state’s adult residents a new opportunity to take an ownership stake in those firms.

Securities Commissioner John Morgan said the rules should go into effect around late November.

While Morgan said he initially worried a Texas-only crowdfunding market might lack enough interest to justify the exemption from securities regulations, he said he has already heard from “as many as 10” groups who have expressed interest in launching an equity crowdfunding portal.

“There’s enough energy and activity in Texas to warrant something like this,” Morgan said after the board approved the measures. “Texas has a large enough economy to support this.”

Morgan said he expects several groups to start the portal-certification process in the coming days or weeks, and approved sites could go live as soon as the rules take effect. Their first offerings could launch thereafter.

In his comments to the board before its vote, Morgan said his staff will monitor the state’s equity crowdfunding market as it develops and will propose changes to the rules as necessary to prevent fraud or other issues that might arise.

The state’s move to establish that market, which is open only to Texas companies and Texas residents, came in response to continued delays at the Securities and Exchange Commission. Federal securities regulators there have yet to pass the rules that would govern equity crowdfunding across state borders, despite a January 2013 deadline established by the Jumpstart Our Business Startups (JOBS) Act in 2012.

At least 13 states have now passed some form of intrastate equity crowdfunding regulations.

The Texas version allows companies to offer securities through state-certified equity crowdfunding portals. Firms can raise up to $1 million in any 12-month period.

Previously, such equity crowdfunding offers were open only to accredited investors — essentially, individuals with at least $1 million in net wealth or at least $200,000 in annual net income. The new rules open up the crowdfunding portals and the securities they offer to non-accredited investors as well, although they cannot invest more than $5,000 into any single offering.

In a tweak from the initial public draft of the rules, the board also approved a provision that would allow accredited investors to “self-certify,” rather than requiring extensive documentation to confirm their wealth.

The securities board staff recommended the change, agreeing with public comments that suggested the documentation requirement might be too invasive and turn off many accredited investors.

©2014 Austin American-Statesman, Texas


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