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Crowdfunding and the Public/Private Divide in U.S. Securities Regulation
The origination and expansion of crowdfunding as a capital-raising tool has been a hot topic on the street and in the media and the academy for a few years now. In less than ten years, this fusion of social media and traditional corporate finance—a mode of corporate finance through which firms raise investment capital by reaching out over the Internet to a broad, undifferentiated mass of potential investors —grew from a creative impulse to a movement that catalyzed federal legislative action. Its socio-legal bounds are as yet relatively untested. It seems that crowdfunding offers something to nearly everyone.
How To Raise Capital Through Exempt and Limited Offerings
Protecting investors and ensuring efficient capital markets is one of the main purposes of the federal securities laws. Disclosure is one of the primary means through which these two objectives are achieved. This contrasts against the merit-based approach to regulating the capital markets, in which regulators evaluate the suitability of securities offered to the public. While a disclosure-based regime provides market participants with more autonomy, it also relies on their aptitude for discerning worthwhile and legitimate investment opportunities from mere lemons. More importantly, the success of a disclosure- based regime depends on the extent and quality of the disclosure. The securities laws mandate disclosure in a variety of circumstances. For instance, companies whose securities are listed on a national securities exchange must periodically disclose quarterly and annual information with the Securities and Exchange Commission (the “SEC”). This provides investors and analysts information upon which to make or recommend investment decisions. Also, when a company reaches a certain size in terms of its total assets and has a class of equity securities held by a certain number of persons, it too must disclose periodic information even if its securities are not listed on an exchange.
Hot Topics in Private Equity and Hedge Funds
The private fund industry has undergone remarkable change over the past six years. While the industry has rebounded with significant growth since the financial crisis of 2008, it is also facing increased regulation, and for many in the industry, regulation for the first time, as a result of the passage of the Dodd- Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Historically, many in the private fund industry were able to avoid registration under the Investment Advisers Act of 1940 (the “Advisers Act”) due to the “private investment adviser exemption” under Section 203(b)(3) of that Act. After that exemption’s elimination by the Dodd-Frank Act, however, many private investment advisers became registered with the Securities & Exchange Commission (the “SEC”) for the first time and many have recently gone through their first SEC examination.
Fall, 2015
Includes articles the 84th Session of the Texas Legislature, specifically: "2015 Texas Legislative Update on Entity Law" by Daryl Robertson; "A Series LLC Is Now Included Under The Texas UCC’s Definition Of Person, Removing Uncertainty For Secured Lending Transactions" by James Leeland; "Power of Attorney Bill (HB 3095)" by Jacqueline Akins. There were two non-legislative articles as well, including: "Confidentiality of Email – The Changing Consensus" by Ronald Chichester; and "Texas Crowdfunding Portals Provide Texas Businesses New Access to Investment Dollars" by R. Jason Pierce.
Fall, 2015
Includes articles the 84th Session of the Texas Legislature, specifically: "2015 Texas Legislative Update on Entity Law" by Daryl Robertson; "A Series LLC Is Now Included Under The Texas UCC’s Definition Of Person, Removing Uncertainty For Secured Lending Transactions" by James Leeland; "Power of Attorney Bill (HB 3095)" by Jacqueline Akins. There were two non-legislative articles as well, including: "Confidentiality of Email – The Changing Consensus" by Ronald Chichester; and "Texas Crowdfunding Portals Provide Texas Businesses New Access to Investment Dollars" by R. Jason Pierce.
Crowd Funding: New Tools, New Opportunities
This article will set out the fundamental requirements involved in interstate and Texas intrastate equity crowdfunding offerings. It will be important to take another look at the intrastate alternative when practitioners and others comment on the proposed changes to SEC Rule 1474 and the SEC adopts some version of them. Intrastate crowdfunding offerings must also comply with some federal exemption. A streamlined and modernized version of Rule 147 should be helpful in increasing the use and popularity of intrastate crowdfunding.
Crowd Funding: New Tools, New Opportunities
Well, it is finally here! Regulation CF (“CF” for crowdfunding) was adopted by the SEC on October 30, 2015. At the same time, the considerable effort expended by states, including Texas, to enact statutes or rules relating to intrastate crowdfunding is still relevant. Intrastate rules offer a parallel alternative in states where there resides enough investment capital to create a market of sorts. At the same time that the SEC adopted Regulation CF, it proposed significant changes to Rule 147, a federal offering exemption that needs to be paired with intrastate crowdfunding offerings. The changes are designed to make intrastate equity crowdfunding easier. Beyond offerings that are crowdfunded, there are Rule 506(c) offerings with general solicitation which can be conducted on websites with no substantive state regulation of the issuers and offerings but substantive state regulation of any intermediaries or platforms involved in the offerings.
Crowdfunding from Texas Crowds
The Texas Intrastate Crowdfunding Rules have flexibility that neither the comparable federal statute nor the proposed federal rulemaking have. The Texas rules allow all of the intermediaries operating crowdfunding portals to take compensation. That should encourage the formation of portals and registration with the Texas State Securities Board. In contrast, the definitions and operational limits on both federal Funding Portals and intermediaries in Rule 506(c) offerings exempted under ’34 Act Section 3(h) cannot take compensation. The Texas issuer’s offering exemption provides for a larger ceiling for the investment by each individual investor and has no ceiling on investments by Accredited Investors. In contrast, federal statutory provisions for crowdfunding offerings have ceilings, whether the investors are Accredited Investors or not and all investors must be Accredited Investors in Rule 506(c) offerings made on portals. The Texas rules will likely disqualify fewer issuers than the federal statutory provisions for crowdfunding or the regulatory requirements for Rule 506(c) offerings do. And, the simpler set of disqualifying events or conditions under Texas rules impose a lesser burden in ensuring compliance with the exemption than exists under the federal exemptions.
Financing Alternative for Small and Mid-Sized Businesses
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Financing the Small Business: From Inception to Expansion
A small business will have different needs and capabilities depending on which stage in the company life cycle that business is in. This article will focus on the needs of a business during the first four stages of its life cycle: seed, start-up, growth and established.