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How to comply with 'blue sky' filing laws in Texas

Blue Sky Filing Laws

Public corporations must comply with a wide range of rules and regulations. This is especially true when dealing with the issuing or sale of securities to raise capital for a business. In most cases, federal securities laws under the jurisdiction of the Securities and Exchange Commission (SEC) apply. However, each state also has its own securities laws that apply to these transactions. These state securities laws are known as blue sky laws.

What are blue sky laws? How does the process work? What is the deadline for filing? How much does it cost to file? It’s important to know the answers to these questions for each state. Below, you can find the answers and additional information about how the process works in Texas. This information is provided by Texas attorneys with decades of experience handling complex blue sky filing cases.

What are blue sky filing laws in Texas?

Companies offering or selling securities in Texas must comply with several securities laws known collectively as blue sky laws. These laws were created to prevent securities fraud. Each state has its own unique blue sky laws.

In Texas, companies doing business must comply with the Texas Securities Act when issuing or selling securities in the state. In addition, companies must comply with numerous federal laws, including Rule 506 of Regulation D of the Securities Act.

Rule 506 of Regulation D is part of the Securities Act of 1933, which regulates the stock market. Regulation D specifies that any company that intends to sell or offer securities for a business must file with the SEC.

Under Rule 506 of Regulation D, additional regulations apply, including how such securities can be marketed (companies cannot use general solicitation, for example) and who can purchase securities (unlimited number of accredited investors and a limited number of so-called “sophisticated non-accredited investors,” as defined by the SEC).

Who oversees securities filings in Texas?

The Texas State Securities Board oversees the issuing or offering of securities for companies in Texas. The board consists of five board members appointed by the Governor to six-year terms. The Austin-based board “is responsible for administering and enforcing the Texas Securities Act,” according to the board’s website.

How does the filing process work?

Companies must file Form D (which is part of Regulation D, Rule 506 of the Securities Act) with the SEC, according to the Texas State Securities Board’s website. Form D (formally known as the Notice of Exempt Offering of Securities) can be filed in the mail or electronically. The 11-page-long Form D can be obtained on the SEC’s website.

How much does it cost to file?

The securities filing fee in Texas varies depending on the amount of financial capital being raised through the offering or sale of securities. Specifically, companies must pay a “fee of 1/10 of 1 percent of the aggregate amount of the offering” when filing Form D with the SEC, according to the Texas State Securities Board’s website. However, the maximum filing fee is $500 for any amount being raised in excess of $500,000.

What is the filing deadline?

The Form D must be filed with the SEC within 15 calendar days of the first day securities are offered for sale in Texas, according to the Texas State Securities Board’s website. That deadline may be extended if the 15th day is a Saturday, Sunday or holiday. In such cases, the next business day applies.

Do any other rules apply?

Many other state and federal rules and regulations may apply depending on the nature of the securities filing, including Rule 506(b) and Rule 506(c) of Regulation D of the Securities Act

In addition, if a company makes a mistake in its initial Form D filing, the company can file an amendment with the SEC. In particular, an amendment to the initial Form D filing must be filed if the initial filing fee was not sufficient to cover the amount of money actually raised from the securities sale. When filing an amendment in such situations, the company must pay three times the difference between the initial filing fee and how much should have been paid, plus 6 percent interest, according to the Texas State Securities Board’s website.

To learn more about Texas’ Blue Sky Laws and how to be in compliance with them, schedule an appointment with an attorney at Brewer, Pritchard & Buckley, P.C. Based in Houston and serving clients nationwide, we have extensive experience dealing with legal matters involving corporate finance, Blue Sky Laws and other securities regulations. Contact us to learn more about how we can assist you.

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