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Legislature proposes Texas crowdfunding

While Texas residents wait on the SEC to issue federal crowdfunding rules, the state legislature has proceeded with its own proposed rules for intrastate equity-raising procedures. Last year, state startups raised just 2 percent of the nation's venture capital, so new Texas businesses are hungry for new sources of seed money.

Other states already have intrastate equity crowdfunding rules in place, so Texas is anxious to get in the game. The proposed rules are simple and would not supersede any SEC rules. The SEC has a proposed 175-page document, but it has already missed several deadlines for putting federal regulations in place. The Texas proposal calls for use of a Texas-based website, a limit of $5,000 from non-accredited investors and an unlimited amount from accredited investors. Funds would be held in a bank account until the required amount is raised, and companies would be limited to raising $1,000,000 every 12 months.

A valid Texas driver's license or voter registration card would be required to prove Texas residency before a person could use the intrastate equity crowdfunding portal. In order for potential investors to evaluate new startup opportunities, companies would have to post financial information and known risk factors.

A capital investment that goes well can prove to be a win-win situation for both the investor and the startup business, but a company is probably interested in making sure new capital is not dilutive nor likely to increase the risk of shareholder suits. All methods of capital raising have legal requirements that must be followed. Before a company decides to use traditional capital-raising methods or to try innovations like crowdfunding, an attorney may advise it on the benefits and risks of each.

Source: Siliconhills, "Texas Proposes Equity-based Crowdfunding Rules", LAURA LOREK, May 16, 2014

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