Texas Blue Sky Laws serve as the regulatory framework for the securities industry within the state. Syndicators aiming to raise capital from investors in Texas should thoroughly acquaint themselves with these regulations. Grasping the fundamentals of Texas’s Blue Sky Laws will empower you to make intelligent business decisions regarding how you structure your offerings. Furthermore, it will help shield you from potential legal complications, ensuring a smooth and compliant operation within the securities landscape of Texas.
What are Blue Sky Laws in General?
The driving force behind securities laws lies in the safeguarding of investors’ interests. Protection is ensured through two tiers of regulatory bodies: the Securities and Exchange Commission (SEC) at the federal level, and the securities regulation agencies functioning within each state.
In spite of the federal government’s curtailment of states’ powers to scrutinize or limit the sale of most securities under federal regulation – such as the syndication of a Reg D offering – states still maintain a significant role. They typically necessitate the filing of a notice, complemented by the payment of the appropriate fee. Moreover, they are endowed with the authority to conduct investigations and, if required, to initiate legal actions against fraudulent activities. This robust mechanism is designed to offer a protective layer for residents within their jurisdictions.
If all the transactions are executed within the boundaries of a state, the state’s own Blue Sky Laws are invoked. In the case of Texas, the Texas Blue Sky Laws form the regulatory bedrock. These laws stipulate the regulatory framework for securities within the state, ensuring transparency, accountability, and the protection of investor interests. Any securities transactions that occur exclusively within Texas are subject to these provisions, bolstering the state’s commitment to maintain a secure and trustworthy environment for investment activities.
What if I Need to Notify Texas about my Regulation D Syndication?
Here are the basic facts you need to know about giving notice to Texas about your Reg D Rule 506b or 506c offer:
Filing fee – Variable
New notice – $0 – $500
Late fee for late filings – None
What are Texas’s Blue Sky Laws?
TX AGRIC § 58.034 General Provisions Relating to Bonds
TX FIN § 89.005 Exemption From Securities Laws
TX FIN § 119.007 Exemption From Securities Laws
TX FIN § 149.002 Exemption From Securities Laws
TX GOVT § 1433.069 Exemptions From Taxation and Securities Act
TX GOVT § 2306.556 Exempt from Taxation and Registration
TX HEALTH & S § 221.067 Exempt Securities
TX HEALTH & S § 223.036 Bonds as Securities
TX INS § 882.756 Sale of Securities
TX LOCAL GOVT § 394.056 Bond as Security
TX CIV ST Art. 581-6 Exempt Securities
TX CIV ST Art. 581-7 Permit or Registration for Issue by Commissioner; Information for Issuance of Permit or Registration
TX CIV ST Art. 581-37 Pleading Exemptions
What are Texas’s securities laws exemptions?
Texas’ Blue Sky Laws, similar to such laws across the country, are designed to protect investors from fraudulent securities transactions within the state. They ensure an environment of transparency and trust in the securities industry, safeguarding the interests of investors. These laws apply a broad array of rules and regulations on the offer and sale of securities, but they also provide certain securities exemptions, which are critical for issuers to understand.
One of the key exemptions under Texas’ Blue Sky Laws pertains to non-profit domestic corporations that have no capital stock. This exemption recognizes the unique financial structures of non-profit organizations, which differ significantly from those of for-profit entities. Because non-profits do not offer ownership shares or dividends, they are exempt from the otherwise stringent regulations of the Texas Securities Act.
Other entities that enjoy exemptions under Texas law are railroads and public service utilities. These industries are integral to public infrastructure and services, and they are typically heavily regulated by other federal and state bodies. Due to their importance and the already existing rigorous oversight, they are granted exemptions from certain Blue Sky Laws in Texas.
An additional exemption is extended to equipment trust certificates. These are securities that offer the holder a beneficial ownership in equipment, often related to transportation industries. The exemption stems from the fact that the certificates are backed by physical assets, reducing the risk of fraud.
Securities that are listed on recognized stock exchanges also fall under the exemptions within Texas Blue Sky Laws. This exemption takes into consideration the fact that these securities are subject to federal regulations and oversight from the exchange itself, providing ample protection to investors.
In keeping with the spirit of supporting non-profit and charitable work, bonds or notes issued by charitable-type corporations are exempted under Texas’ Blue Sky Laws. The exempt status of these securities helps these entities to raise funds for their philanthropic initiatives with fewer regulatory hurdles.
The Blue Sky Laws in Texas also provide exemptions for commercial paper that is part of a current transaction. This exemption typically applies to short-term debt instruments like promissory notes or bills of exchange, which are used to finance current operations, and therefore, carry lower risk.
Lastly, bonds or notes that are secured with certain securities are exempted under Texas’ Blue Sky Laws. This exemption provides leeway for securities that have an additional layer of protection for investors through their link to other, typically lower-risk, securities.
Frequently Asked Questions
Do I need an attorney from Texas then to put together an offering?
That depends. If the offering you are putting together is under Regulation D and not one of the Texas-specific Blue Sky Laws (as discussed above), then probably not.
For example, if you needed a real estate syndication attorney to put together a private placement memorandum for a multifamily deal in Houston, Texas, that was going to be offered in different states, and you didn’t need counsel on questions related to Texas laws, then chances are a licensed syndication lawyer would be able to help. They could even put together the entity for you and write the operating agreement, they just couldn’t provide you counsel on the specific laws of Texas and how they may or may not pertain to your offer.
However, if you were putting together a private placement memorandum for a development project in San Antonio, Texas, all of the investors were from Texas, and you wanted to use one of Texas’s Blue Sky Laws above as an exception to registration, then you would need to work with someone licensed in Texas.
Is it ok if the real estate syndication attorney, licensed outside of Texas, looks over my purchase contract?
They can look, but they can’t give you advice as it pertains to Texas. For example, Tilden Moschetti, Esq, syndication attorney for the Moschetti Syndication Law Group, will look, if asked, about the contract underlying your purchase contract in Dallas, Texas, but makes it clear that he can give business consulting advice (discussion on price and broad deal points like the length of time until closing), but cannot speak to any specific term as he is not licensed there.
Tilden Moschetti, Esq., is a highly sought-after syndication attorney with nearly two decades of experience. His clientele ranges from real estate developers and startups to established businesses and private equity funds. Tilden’s expertise in syndication law comes not only from his knowledge of syndication and securities law but from real, hands-on experience as an active syndicator himself in every real estate product type and nearly all markets in the US. His knowledge and experience set him apart and established him as the Reg D legal services leader.
