Earlier this week, the Texas Securities Board (“TSB”) unanimously approved new rules that permit equity crowdfunding within the state of Texas. Crowdfunding is the process of raising small contributions from a large number of investors via the internet. The new crowdfunding rules exempt from registration securities that are sold through a certified crowdfunding portal. The securities, however, can only be offered and sold within Texas and to Texas residents. Moreover, the issuing company must be a Texas entity, and it can only raise $1 million through the crowdfunding exemption in a twelve-month period. The new rules open the crowdfunding process to nonaccredited investors (i.e., individuals with less than $1 million in net worth and less than $200,000 in annual net income), but each nonaccredited investor is limited to investing $5,000 in each offering. The sales must be completed through a TSB-certified crowdfunding portal, and there are specific requirements and limitations on information that must and can be posted on the portal and limitations on other communications that are permitted with prospective investors.

The new crowdfunding rules allow Texas companies, especially startups, a new avenue for raising capital and provide new investment opportunities for Texas residents. The Crowdfunding rules are expected to go into effect in late November.

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