As you probably read, the Texas Securities Board approved intrastate crowdfunding yesterday without limiting it to accredited investors.  You can read the rules here.

For those wanting to issue equity through intrastate crowdfunding:

• Companies may raise up to $1 million per 12-month period
• Offerings must be carried out online through a registered dealer or crowdfunding portal.
• The company must be a non publicly-traded Texas entity (see below) and can only offer the securities to Texans (see below for more specifics).
• The company must have a defined business plan, investment goals and list disclosures.  This means you will have to post a summary of the offering on the portal at least 21 days before any securities may be sold. The disclosures must include risk factors, a description of the issuer’s business, operations, and management, a description of the securities and other material information.
• Customary bad actor disqualifications apply.
•  Non-Accredited investors may contribute up to $5,000 per offering.
• To obtain more than $5,000 from accredited investors, the company must verify the investor qualifies as “accredited.”
• Investor funds must be placed in escrow until the specified minimum offering amount has been raised.
• You are allowed to provide a limited notice about your efforts and provide a link to the portal, but you can only distribute this to investors located in Texas.
• You do not have to publish reviewed or audited financial statements unless audited financial statements are already available for any of the three years prior to the offering. Instead, the CEO can certify the financial statements are accurate and complete as of the date of the offering.

With regard to the portals:

• Fill out a Form 133.17 with the State Securities Board, complete a background check and pay the registration fee for securities dealers in Texas registering as a restricted dealer.
• You are not  required to pass the General Securities Registered Representative (Series 7) Exam or the Uniform Securities Act State Law (Series G5) Exam.
• You have to limit access and trading activity to Texas.
• The portal must confirm residency before allowing access by the investor.  The portal also has to conduct  background and regulatory checks for bad actor compliance.
• You cannot offer investment advice, manage investor funds, or facilitate secondary market transactions, along with other restrictions.
• You will be required to maintain certain records for five years and you will have post-registration reporting requirements and renewal fees.
• All communications between the investors and the company raising the money must take place on open forums on the portal.

Some of the Details

Now, for those that like to dig into the details, intrastate crowdfunding in Texas is made possible because Section 3(a)(11) of the Securities Act of 1933 exempts from federal registration securities offered and sold only to persons within a single state or territory, in which the issuer is also a resident.

To issue stock as a Texas entity, you must:

• be organized in and have your principal place of business in Texas;
• have at least 80% of your gross revenues during the most recent fiscal year prior to the offering be derived from the operation of business in Texas;
• have at least 80% of the your assets at the end of its most recent semiannual period prior to the offering located in Texas; and
• use at least 80% of the net proceeds of the offering for your operations in Texas.

To invest, you must be a Texas resident which means, you must be:

• A corporation, partnership, trust or other form of business organization with its principal office in Texas.
• An individual who,  at the time of the offer and sale, has her principal residence in Texas.
• If an entity is set up for the specific purpose of buying the stock, all of the beneficial owners have to be residents of Texas.

We will follow up with a more thorough analysis of this method as we digest the new rules.