In addition to complying with the federal securities requirements, a person who wishes to issue securities in Texas must also comply with the Texas securities requirements. In order to avoid the requirement that the securities be registered, the company must satisfy one of the Texas exemptions. These exemptions include an exemption for employee stock option and similar plans, two limited offering exemptions, the Texas intrastate limited offering exemption, and the Texas uniform limited offering exemption which is the subject of this article.
The Texas uniform limited offering exemption (“ULO”) is an expansion of, and an alternative to, the Texas exemption for employee stock option and similar employee plans, the two Texas limited offering exemptions, and the Texas intrastate limited offering exemption. Under the Texas uniform limited offering exemption, securities offered and sold in compliance with Rules 505 and 506 of Regulation D are exempt from registration in Texas if the issuer satisfies certain requirements, conditions, and limitations. These requirements include filing a notice on Form D with the Texas Securities Commissioner. This notice must contain an undertaking by the company to furnish to the commissioner, on written request, the information the company gave to those to whom it offered to sell the securities. The initial notice must also contain a consent of service of process. The issuer must sign the Form D and file it with the Texas Securities Commissioner at least 15 days after the first sale of the securities to a Texas resident.
Under the ULO, the company cannot pay a commission, finder's fee, or other payment for soliciting prospective purchasers in connection with sales of securities other than to a registered dealer or sales person.
In all sales to non-accredited investors (that is, any investor who does not meet the definition of an “accredited investor”), the company and any person acting on its behalf must have reasonable grounds to believe, and after reasonable inquiry must believe, that both of the following conditions are satisfied:
1. The investment is financially suitable for the purchaser on the basis of such facts, if any, that are disclosed by purchaser as to its other security holdings and its financial situation and needs. For the purpose of this condition, it is presumed that the investment is suitable if the investment does not exceed 10 percent of the investor's net worth.
2. The purchaser, either alone or with the its representative, has such knowledge and experience in financial and business matters that the purchaser is capable of evaluating merits and risks of the prospective investment.
Sales made to “non-accredited investors” must comply with the disclosure requirements set forth for “well-informed” investors, that is, the company must provide printed material to the investor, before the purchase. This printed material must be fair and factual and disclose the company’s plan of business, its history, and its financial statements. Additionally, the written materials must contain all material facts necessary to avoid making any misleading statements.
Please see the following articles for additional information: Private Offering Exemption / Regulation D Exemption, Federal Intrastate Securities Exemption, Federal Securities Aspects of a Stock Option Grant, Texas Exemption for Employee Stock Option and Similar Plans, Texas Intrastate Exemption, Texas Limited Offering Exemptions.
THIS INFORMATIONAL MEMORANDA FROM THE LAW OFFICES OF THOMAS D. SOLOMON, P.C. is provided as a courtesy to our friends and clients to provide them with items of interest in the securities area. It is not and is not intended to be an exhaustive treatment of its subject matter, but rather an overview of the more pertinent elements of such a transaction. It is not intended to be legal advice or a legal opinion and should not be relied on in making legal or business decisions. If you have any questions, please call us.
