Texas has recently decided to make it legal for crowdfunding to be used as an investment tool for small businesses in the state, joining 12 other states that have already done so. Prior to the new regulations, organizations were only allowed to provide investors with promotional items in return for their fundraising dollars, but the new rules allow people to be given equity shares in the company. However, regulations limit individuals to $5,000 in total investments, and businesses are only able to raise one million dollars annually through online portals.
Lawmakers believe that an increase in funding options will help small businesses grow, and they cite the fact that there are 20 million people in the state who are 18 years old and eligible to invest $5,000. This means that there are potentially $100 billion in investment capital in the state of Texas alone.
Previous to this rule change, companies had to prove that they had earnings of at least $250,000 annually or had one million dollars in liquid assets to be able to sell investments directly to consumers. While this is no longer going to be a requirement, individuals will only be able to invest in companies within the state of Texas through crowdfunding.
If a small business owner is interested in acquiring capital through an online fundraising portal in Texas, it is important that they understand the regulations they must follow. If an organization does not fulfill its obligations to the state and investors, legal issues are likely to develop. A business and commercial law attorney may be able to help individuals understand what is required to take advantage of these types of investments and could help them meet state and federal requirements for doing so.
Source: Star-Telegram, "Texas set to allow crowdfunding investments for small businesses", Teresa McUsic, August 08, 2014