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Can I offer equity to investors without violating securities laws in Texas? What are the requirements?

To offer equity to investors in Texas, you must comply with the securities laws in the state. The requirements for offering securities in Texas are outlined in several sections of the Texas Government Code and the Texas Finance Code.

Authorized Sale of Securities

To offer securities for sale in Texas, the security must be registered under Subchapter B or C of Chapter 4003 of the Texas Government Code, or a permit qualifying securities for sale must be issued under Subchapter A of Chapter 4003 [3.2].

Institutional Investors

The exemption provided by Section 4005.001 of the Texas Government Code applies to the sale of a security to institutional investors, including banks, trust companies, building and loan associations, savings and loan associations, insurance companies, surety or guaranty companies, savings institutions, investment companies, small business investment companies, or registered dealers actually engaged in buying and selling securities [1.1].

Authorized Written, Printed, or Broadcast Offers

A person may make a written or printed offer, including a pictorial demonstration with any accompanying script, or broadcast offer to sell a security in Texas if the offer is filed with the commissioner not later than the 10th day after the date of the offer’s first use in Texas, the person making or distributing the offer is a registered dealer or registered agent of a registered dealer, and the security is registered or an application for registration has been filed with the commissioner [3.1].

Prospectus Required for Certain Offers

The commissioner shall require that, in connection with a permit qualifying securities for sale, all offers for the sale of the securities be made through a prospectus that fairly discloses the material facts about the plan of finance and business and must be filed with and approved by the commissioner [3.3].

Exceptions

There are some exceptions to the requirement of registering securities or obtaining a permit. For example, the exemption provided by Section 4005.003 of the Texas Government Code applies to the sale of a security pledged in good faith as security for a bona fide debt that is made by or for the account of a pledge holder or mortgagee that is selling the security or offering the security for sale or delivery in the ordinary course of business to liquidate the debt [1.2]. Additionally, the limitation of liability created by Section 4008.061 of the Texas Government Code applies to an offer of securities in an aggregate amount that does not exceed $5 million made by a small business issuer or by the seller of securities of a small business issuer [4.1].

Based on the above, to offer equity to investors in Texas, you must comply with the securities laws in the state. You can offer securities for sale if they are registered or a permit qualifying securities for sale has been issued. Alternatively, you can offer securities to institutional investors. If you make a written or printed offer, you must file it with the commissioner and be a registered dealer or registered agent of a registered dealer. Finally, if you are offering securities through a permit, you must make all offers through a prospectus that is filed with and approved by the commissioner. There are some exceptions to the requirement of registering securities or obtaining a permit, such as the sale of a security pledged in good faith as security for a bona fide debt or an offer of securities in an aggregate amount that does not exceed $5 million made by a small business issuer.

Source(s):
Jurisdiction

Texas