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Austin TX Business Law Blog

Wednesday, November 12, 2014

New Texas Legislation Allowing Crowdfunding

The State of Texas is taking another step in the right direction when it comes to small businesses.  The state is expanding the mechanisms that a business startup can use to raise money.  

Texas laws currently limit private investments in business.  To comply with Texas law, contributions from venture capital and angel funds must be from investors with a certain amount of wealth or that are accredited.  This regulation seriously restricts the types of investments businesses are allowed to obtain.  But, in November, these rules are changing after the Texas Board of Securities approved crowdfunding in the state.  

Crowdfunding is a method of raising capital, usually from a large amount of investors who all make small contributions.  This process is completed mostly online and is popular in a variety of industries.  Crowdfunding will be allowed between investors and businesses in the state and investors will be able to contribute up to $5000 to a particular venture.  Businesses in Texas will now be allowed to utilize the internet to raise funds and private investors will no longer have to meet strict requirements.  The Texas Securities Board will continue to regulate the practice and will still request that businesses disclose certain investor information.  Businesses will also only be allowed to raise $1 million dollars per year.  

While some believe that this is a breakthrough for startups and small businesses in Texas, others are not as enthusiastic.  Critics highlight that crowdfunding is not the best choice for all businesses and that the decision to utilize this method should be made on a case by case basis.  They also point out that crowdfunding is much more difficult for larger businesses and even small startups might not want to deal with a large group of investors in the future. 

In any event, as we are still waiting for Federal regulation of crowdfunding, it is important to know and understand the state specific rules applicable to investments in your business.  If you are considering starting a business and using crowdfunding to raise capital, you should consult with a competent attorney. Call Austin, Texas business law attorney Sanjeev Kumar at (512)323-6060 for a consultation today.

 


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