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Securities Law in Texas – Perspectives from a Regulator & a "Reformed" Regulator
Capital formation efforts by businesses small and large continue to contribute to the vitality of the Texas economy. The Texas Securities Act and the regulations, thereunder, provide avenues to raise capital while also establishing standards and processes intended to protect investors. As such, business owners and their lawyers commonly face questions like “Do I have to file anything if I want to find investors?,” “Who can I raise money from?,” “Can Jane help me raise money if I don’t pay her?,” and“What is the penalty for doing this wrong?” The easy answer – and the least satisfying one for all involved – “It depends.” This article outlines for counsel certain key initial considerations raised regularly by businesses seeking to raise capital or other activity involving securities.
Private Causes of Action Under the Texas Securities Code
The Texas Legislature passed the Texas Securities Act recodification in the 2019 regular session with an effective date of January 1, 2022.1 The Legislature amended the recodified Texas Securities Act’s private cause of action provisions through SB 1280 during the 2021 regular session by deleting cross-references imposing liability for violations as to six Texas Securities Act provisions that imposed no duties on private actors and thus had no potential for violations by private actors.2 Business attorneys should have some familiarity with the recodified Texas Securities Act’s private causes of action and remedies in order to properly advise clients of potential pitfalls in securities transactions. Business attorneys should also relearn the Texas Securities Act statutory structure, which has significantly changed. The previous Texas Securities Act had had 64 sections. The recodified Texas Securities Act (“Recodified TSA”) has 248 sections - almost 400% more.
Basics of Securities Laws of Federal and Texas Securities Laws Compliance and Review of Available Exemption Processes
This paper will address basic issues for securities law compliance for an exempt offering of securities in the State of Texas. Set out below are the basic building blocks of federal and state securities requirements that with the principal purpose of guiding compliance with securities laws concerning the offering and sale of equity in a client’s business. Compliance may consider issues such as the client in choosing the form of business entity, identifying and quantifying the risk of the transaction, as well as assisting the client in identifying the nature of the investors most likely to consider an investment in the proposed transaction. This paper, however, will focus on an overview of how to comply, with some explanation about the history and thought processes involved, so as to help you off to a running start. I will focus on the most common federal exemption, since that is the most simple and common form of compliance (very easy to find templates and “go-bys”), and also makes state compliance the most straight forward. Other possibilities for compliance are listed, both for education and also to make you aware of other possible compliance regimes if the most common is not available or a good fit. This paper will not, however, be a compendium. For example issues such as what constitutes a “security,” or liabilities for issuers and their control persons, or principles of rescission (to fix a broken exemption) are all outside the scope of this paper.
Shareholder Agreements: Litigation Perspectives
It has been almost five years since the Texas Supreme Court declined to recognize a common law cause of action for shareholder oppression. Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014). Although it restricted shareholder common law rights, Ritchie did not put an end to shareholder litigation. As highlighted further below, recent cases show that shareholders continue to seek available judicial remedies, including through derivative actions and the various statutory and common law causes of action and remedies outlined by the Court in Ritchie. These cases provide insight into the types of claims practitioners should be cognizant of when advising their clients and drafting organizational documents. Through its repeated emphasis on the use of shareholder agreements, the Court in Ritchie for many situations left it to shareholders and corporations to protect their respective rights and interests and govern themselves by contract. Id. at 871. Thus, five years after Ritchie, the importance of well-drafted shareholder agreements cannot be understated. Accordingly, this article also discusses some of the potential provisions that practitioners should strongly consider including in their organizational documents, including shareholder agreements.
Practical Considerations for Registering Securities Pursuant to the Texas Securities Act
Prior to adoption of the National Securities Markets Improvement Act of 1996 (“NSMIA”),1 many practitioners routinely wrestled with state securities laws (commonly referred to as “blue sky” laws) in conjunction with a proposed offering of securities regardless of whether such offering was registered under the federal Securities Act of 1933 (the “Securities Act”). Since 1996, however, the blue sky analysis has been simplified considerably because of NSMIA’s preemption of state regulation as it relates to certain “covered” securities. As a result, many securities practitioners have little experience when it comes to registering securities pursuant to the Texas Securities Act. This article provides an analysis of the state registration process in Texas and issues frequently encountered.
Private Causes of Action Under the Texas Securities Act
Business attorneys should be familiar with the Texas Securities Act’s private causes of action and remedies, in order to properly advise clients of potential pitfalls in securities transactions. Compliance with the Texas Securities Act (the “TSA”) cannot be contractually waived3 and thus will be a common focus of potential investment litigation claims. This article explains the tests and analysis required to determine whether a security is present, before detailing the Texas Security Act’s private causes of action and the ways in which they differ from theSecurities Act of 1933 and Securities Exchange Act of 1934
Private Causes of Action under the Texas Securities Act
Business attorneys should be familiar with the Texas Securities Act’s private causes of action and remedies, in order to properly advise clients of potential pitfalls in securities transactions. Compliance with the Texas Securities Act (the “TSA”) cannot be contractuallywaived3 and thus will be a common focus of potential investment litigation claims. This article explains the tests and analysis required to determine whether a security is present, before detailing the Texas Security Act’s private causes of action and the ways in which they differ from the Securities Act of 1933 and Securities Exchange Act of 1934.