Crowdfunding as a method of raising capital for business ventures has received a fair amount of attention over the last year or so. It has been advocated – in principle, at least – by a number of bloggers and internet commentators. The obstacles to it posed by the securities-registration requirements of the federal Securities Act of 1933 and of the various state securities laws have been the subject of a number of blog posts or entries and even scholarly papers. The Chairman of the Securities and Exchange Commission promised, in a letter to Representative Darrell Issa dated April 6, 2011, that the SEC staff would study and address crowdfunding as part of its review of the SEC’s capital-formation regulations. (On this point, also see the post “SEC Takes a Look at Capital Raising.”)
A recent Texas Court of Appeals decision in Ritchie v. Rupe, 339 S.W.3d 275 (Tex.Civ.App. – Dallas 2011, pet. filed), raises uncertainty for boards of directors and management of privately held Texas corporations that are dealing with shareholders desiring to sell shares. The case concerned a minority shareholder of a closely held Texas corporation who desired to sell shares she held as trustee of a family trust. The shares had been held for a number of years and were not subject to a shareholders’ agreement that restricted sales. The board of directors and management of the corporation cooperated in certain respects with the minority shareholder’s efforts to sell, but refused to meet with prospective purchasers of the shares.
The SEC recently (Aug. 8, 2011) proposed (PDF) an amendment to Rule 146 under Section 18 of the Securities Act of 1933 to designate certain securities on BATS Exchange, Inc. as “covered securities” for purposes of Section 18. As a general matter, “covered securities” are exempt from state law registration or qualification requirements pursuant to the National Securities Markets Improvement Act of 1996 (“NSMIA”). The proposed amendment raises the question: what securities are “covered securities” today?