Section 109.13 - Limited Offering Exemptions(a) The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Private Offering Exemptions. The term "Private Offering Exemptions" refers to §4005.012 and §4005.013 of the Act.(2) Limited Offering Exemptions. The term "Limited Offering Exemptions" refers to the two limited offering exemptions found in subsections (a)(1) and (a)(2) of §§4005.012 of the Act. The term "Limited Offering Exemption (a)(1)" refers to the exemption in subsection (a)(1) of §4005.012 of the Act, and the term "Limited Offering Exemption (a)(2)" refers to the exemption in subsection (a)(2) of §4005.012 of the Act.(3) Registration Sections. The term "Registration Sections" refers to Subchapters A, B, and C of Chapter 4003 of the Act.(4) Public solicitation. The offer for sale or sale of the securities of the issuer would not involve the use of public solicitation under the Private Offering Exemptions if the issuer, after having made a reasonable factual inquiry has reasonable cause to believe, and does believe, that the purchasers of the securities are sophisticated, well-informed investors or well-informed investors who have a relationship with the issuer or its principals, executive officers, or directors evincing trust between the parties (namely close business association, close friendship, or close family ties), and such purchasers acquire the securities as ultimate purchasers and not as underwriters or conduits to other beneficial owners or subsequent purchasers. The use of a registered dealer in a sale otherwise meeting the requirements of either §4005.0012 or §4005.013 does not necessarily mean that the transaction involves the use of public solicitation. The offer without advertising to a person who did not come within the class of persons described in this subsection does not alone result in public solicitation if the issuer had a reasonable cause to believe and did believe that such person fell within the class of persons described, and that such offer was not made indiscriminately.(5) Well informed. The term "well-informed" could be satisfied through the dissemination of printed material to each purchaser prior to his or her purchase, which by a fair and factual presentation discloses the plan of business, the history, and the financial statements of the issuer, including material facts necessary in order that the statements made, in the light of circumstances under which they are made, not be misleading.(6) Sophisticated investor. In determining who is a sophisticated investor at least the following factors should be considered. (A) The financial capacity of the investor, to be of such proportion that the total cost of that investor's commitment in the proposed investment would not be material when compared with his total financial capacity. It may be presumed that if the investment does not exceed 20% of the investor's net worth (or joint net worth with the investor's spouse) at the time of sale that the amount invested is not material.(B) Knowledge of finance, securities, and investments, generally. This criteria may be met by the investor's purchaser representative if such purchaser representative has such knowledge, so long as such purchaser representative:(i) has no business relationship with the issuer;(ii) represents only the investor and not the issuer; and(iii) is compensated only by the investor.(C) Experience and skill in investments based on actual participation. This criteria may be met by the investor's purchaser representative if such purchaser representative has such experience and skill, so long as such purchaser representative:(i) has no business relationship with the issuer;(ii) represents only the investor and not the issuer; and(iii) is compensated only by the investor.(b) Advertisements. The term "advertisements" does not include the use of the type of printed material as set out in subsection (a) of this section under the discussion of the term "well-informed." Further, the main concept to be considered in a definitional analysis of the term "advertisements," as it is used in the Private Offering Exemptions is the method of use of the printed material. The following circumstances, though not intended to be exclusive, will be considered in determining whether the method of use of any printed material is within the limits of the Private Offering Exemptions:(1) limited printing of the material;(2) limited distribution of the material only to persons who the issuer, after having made a reasonable factual inquiry has reasonable cause to believe and does believe are sophisticated investors, or to persons who have a relationship with the issuer as set forth in subsection (a) of this section, or to their purchaser representatives;(3) control of the printing and distribution of the printed material;(4) recognition of the necessity of compliance with the requirements set forth in this subsection on the part of the issuer and the investor. Such recognition might consist of a printed prohibition on the front in large type that the circular is for that individual's confidential use only, and may not be reproduced; and, the use of a statement warning that any action contrary to these restrictions may place such individual and the issuer in violation of the Texas Securities Act.(c) Number of security holders or purchasers of securities. In computing the number of purchasers or security holders for the Private Offering Exemptions, the following criteria shall be used. (1) There shall be counted as one purchaser or security holder any purchaser or security holder together with: (A) any relative or spouse of such purchaser or security holder who has the same home as such purchaser or security holder; any relative of such spouse who has the same home as such purchaser or security holder; any relative or spouse or relative of such spouse who is a dependent of such security holder;(B) any trust or estate in which such purchaser or security holder or any of the persons related to him as specified in subparagraph (A) or (C) of this paragraph collectively have more than 50% of the beneficial interest (excluding contingent interests); and(C) any corporation or other organization of which such purchaser or security holder or any of the persons related to him as specified in subparagraph (A) or subparagraph (B) of this paragraph collectively are the beneficial owners of more than 50% of the equity securities (excluding directors' qualified shares) or equity interest.(2) There shall be counted as one purchaser or security holder any corporation, partnership, association, joint stock company, trust, or unincorporated association, organized and existing other than for the purpose of acquiring securities of the issuer for which the exemption is claimed under the Private Offering Exemptions.(3) Any general partner of a limited partnership who is subject to general liability for the obligations of the limited partnership and actively engages in the control and management of the business and affairs of the limited partnership or of the managing general partner of the partnership shall not be counted as a purchaser or security holder for purposes of the Private Offering Exemptions.(4) The Limited Offering Exemptions, as interpreted in subsections (a) - (j) of this section may not be combined with the exemptions promulgated pursuant to the Act, §4005.024, contained in subsections (k) and (l) of this section to exceed sales to 35 unaccredited investors in a 12-month period.(5) "Security holders" or "purchasers of securities," as those terms are used in the Limited Offering Exemptions do not include holders of any options granted pursuant to a plan that falls within the exemption for compensatory or benefit plans provided by §4005.013 of the Act.(d) Total number of security holders. The phrase "the total number of security holders of the issuer" in the Limited Offering Exemption (a)(1) includes all security holders of the issuer without regard to their places of residence (within or without the State of Texas) and without regard to where they acquired the securities. In determining the number of persons for purposes of the Limited Offering Exemption (a)(2), prior sales to persons residing outside the State of Texas and prior sales to Texas residents consummated outside the State of Texas shall be included unless such sales were made in compliance with § 139.7 of this title (relating to Sale of Securities to Nonresidents).(e) Other exemptions. The phrase "exempt under another provision of this subchapter " in §4005.012(b)(1) means exempt under any provisions of the Act, other than the Limited Offering Exemption subsection (a)(1) of this section, and subsections (k) and (l) of this section.(f) Compensation plans and contracts exemption found in §4005.013 of the Act. (1) No public solicitation or advertisement under §4005.013 of the Act occurs by the distribution to eligible persons of a prospectus filed under the Securities Act of 1933 with the SEC for the plan or any other material required or permitted to be distributed by the Securities Act of 1933 in connection with such plan when the securities under the plan are sold or distributed in a transaction otherwise meeting the requirements of §4005.013.(2) Insurance agents who are exclusive agents of the issuer or its subsidiary or derive more than 50% of their annual income from the issuer or its subsidiary are deemed "employees" as that term is used in §4005.013.(g) Sales made under §4005.013 of the Act. Only the employer and its participating subsidiaries, parents, or subsidiaries of such parents, if any, may offer or sell securities in connection with the employee plan without registration as dealers. For purposes of §4005.013 of the Act., the term "issuer" includes a general partner of a limited partnership with respect to a security sold or distributed by such limited partnership in a transaction otherwise meeting the requirements of §4005.013 of the Act. An employee of the issuer or its participating subsidiary who aids in offering or selling such securities in connection with the plan is not required to be registered as an agent provided the employee meets all of the following conditions: (1) the employee was not hired for the purpose of offering or selling such securities;(2) the employee's activity involving the offer and sale of such securities is strictly incidental to his or her bona fide primary nonsecurities-related work duties; and(3) the employee's compensation is based solely on the performance of such other duties, i.e., the employee does not receive any compensation for offering for sale, selling, or otherwise aiding the sale of securities.(h) Section 4005.013 plans for counting purposes. A noncontributory stock ownership plan or stock ownership trust that holds securities of the issuer for the benefit of the participants in that issuer's plan shall be counted as one security holder under the Limited Offering Exemption in (a)(1) of this section. Plan participants in such a stock ownership plan or trust will not be deemed security holders of the issuer for purposes of counting security holders under the Limited Offering Exemption in (a)(1) of this section solely because of their participation in the plan or trust. However, participants receiving distributions of securities from the plan or trust will be deemed security holders of the issuer on receipt of securities of the issuer from the plan or trust.(i) Notices. There is no notice filing requirement for sales made under the Private Offering Exemptions.(j) Limitations on disposition. The issuer and any person acting on its behalf shall exercise reasonable care to assure that the purchasers are acquiring the securities as an investment. Such reasonable care should include, but not be limited to, the following: (1) making reasonable inquiry to determine if the purchaser is acquiring the securities for his or her own account or on behalf of other persons;(2) placing a legend on the certificate or other document evidencing the securities to the effect that the securities have not been registered under any securities law and setting forth or referring to the restrictions on transferability and sale of the securities;(3) issuing stop transfer instructions to the issuer's transfer agent, if any, with respect to the securities, or, if the issuer transfers its own securities, making a notation in the appropriate records of the issuer;(4) obtaining from the purchaser a signed written agreement to the effect that the securities will not be sold without registration under applicable securities laws or exemptions therefrom; and(5) prior to sale, written disclosure to each purchaser, to the effect that a purchaser of the securities must bear the economic risk of the investment for an indefinite period of time because the securities have not been registered under applicable securities laws and therefore cannot be sold unless they are subsequently registered under such securities laws or an exemption from such registration is available; and that the securities are subject to the limitations set forth in paragraphs (2) - (4) of this subsection.(k) Limited offering exemption coordinating with SEC Regulation D, Rule 506. In addition to sales made under the Private Offering Exemptions, the State Securities Board, pursuant to the Act, §4005.024, exempts from the registration requirements of the Registration Sections, any offer or sale of securities offered or sold in compliance with the Securities Act of 1933, Regulation D (17 C.F.R. §§ 230.500-230.508, as amended), Rule 506, including any offer or sale made exempt by application of Rule 508(a), and which satisfies the following further conditions and limitations. (1) In addition to the other requirements of this subsection, to claim this exemption, the issuer must comply with notice filing provisions set out in § RSA 114.4(b)(1) of this title (relating to Filings and Fees).(2) Transactions which are exempt under this subsection may not be combined with offers and sales exempt under any other rule or section of the Act; however, nothing in this limitation shall act as an election. Should for any reason, the offer and sale fail to comply with all of the conditions for this exemption, the issuer may claim the availability of any other applicable exemption.(3) In view of the objective of this subsection and the purposes and policies underlying the Texas Securities Act, the exemption is not available to any issuer with respect to any transaction which, although in technical compliance with this subsection, is part of a plan or scheme to evade registration or the conditions or limitations explicitly stated in this subsection.(4) Nothing in this subsection is intended to relieve registered dealers, or agents from the due diligence, suitability, or know your customer standards or any other requirements of law otherwise applicable to such registered persons.(5) The staff of the State Securities Board will review all notice filings made under this subsection to determine if the correct filing fee was submitted. If the staff determines that the fee paid was deficient, the staff will notify the filer through the EFD system or by email if the filing was not made through EFD. A filer who receives such a notice may correct the deficiency within 30 days of the date that the notice is sent by the staff. If a timely correction is made, the filing shall be deemed to be complete and in compliance with the filing requirements as of the date the original filing was received.(6) When an offering is made in compliance with Regulation D of the SEC and the offering will be made by or through a registered securities dealer, the issuer and its directors, officers, agents, and employees may make themselves available to answer questions from offerees, as required by Rule 502(b)(2)(v) of Regulation D, without being required to register as securities dealers or agents under Chapter 4004 of the Act.(l) Intrastate limited offering exemption. In addition to sales made under the Private Offering Exemptions, the State Securities Board, pursuant to the Act, §4005.024, exempts from the registration requirements of the Registration Sections, any offer or sale of any securities by the issuer itself, or by a registered dealer acting as agent for the issuer provided all offers and sales are made pursuant to an offering made and completed solely within this state and all the conditions in paragraphs (1) - (11) of this subsection are satisfied. (1) The sale is made, without the use of any public solicitation or advertisements, as set forth in subsections (a) and (b) of this section to:(A) not more than 35 new security holders of the issuer who meet the criteria stated in subsection (a) of this section and who became security holders during the period of 12 months ending with the date of the sale in question (subject to paragraph (7) of this subsection); and(B) other well-informed investors who are "accredited investors" as defined in § 107.2 of this title (relating to Definitions). (For purposes of this subsection, the term "well informed" shall have the same meaning as set out in subsection (a)(5) of this section, and the term "Private Offering Exemptions" in such subsection shall include sales made pursuant to this subsection.)(2) Neither the issuer nor the registered dealer (as such terms are defined in paragraph (4) of this subsection): (A) is currently subject to any administrative order issued by state or federal authorities within five years of the expected offer and sale of securities in reliance upon this exemption, which order: (i) is based upon a finding that such person has engaged in fraudulent conduct; or(ii) has the effect of enjoining such person from activities subject to federal or state statutes designed to protect investors or consumers against unlawful or deceptive practices involving securities, insurance, commodities or commodity futures, real estate, franchises, business opportunities, consumer goods, or other goods and services;(B) has been convicted within five years prior to commencement of the offering of any felony or misdemeanor of which fraud is an essential element, or which is a violation of the securities laws or regulations of this state, or of any other state of the United States, or of the United States, or any foreign jurisdiction; or which is a crime involving moral turpitude; or which is a criminal violation of statutes designed to protect consumers against unlawful practices involving insurance, securities, commodities or commodity futures, real estate, franchises, business opportunities, consumer goods, or other goods and services;(C) is subject to any order, judgment, or decree entered within five years prior to commencement of the offering by any court of competent jurisdiction which temporarily or permanently restrains or enjoins such person from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving any false filing with any state; or which restrains or enjoins such person from activities subject to federal or state statutes designed to protect consumers against unlawful or deceptive practices involving insurance, commodities or commodity futures, real estate, franchises, business opportunities, consumer goods, or other goods and services.(3) The prohibitions of subparagraphs (A) - (C) of paragraph (2) of this subsection shall not apply if the party subject to the disqualifying order is duly licensed to conduct securities-related business in the state in which the administrative order or judgment was entered against such party or, if the order or judgment was entered by federal authorities, the prohibitions of subparagraphs (A) - (C) of paragraph (2) of this subsection shall not apply if the party subject to the disqualifying order is duly licensed to conduct securities-related business by the SEC. Any disqualification caused by paragraph (2) of this subsection is automatically waived if the state or federal authorities which created the basis for disqualification determine upon a showing of good cause that it is not necessary under the circumstances that the exemption be denied.(4) For purposes of paragraphs (2) and (3) of this subsection only, "issuer" includes any directors, executive officers, general partners, or beneficial owners of 10% or more of any class of its equity securities (beneficial ownership meaning the power to vote or direct the vote and/or the power to dispose or direct the disposition of such securities), and "registered dealer" shall include any partners, directors, executive officers, or beneficial owner of 10% or more of any class of the equity securities of the registered dealer (beneficial ownership meaning the power to vote or direct the vote and/or the power to dispose or direct the disposition of such securities).(5) Upon application, and for good cause shown, the Commissioner may waive a disqualification contained in paragraph (2) of this subsection.(6) The offering complies with subsections (a) - (d) and (j) of this section. However, persons who are "accredited investors" as defined in § 107.2 of this title are deemed to be "sophisticated" as defined in subsection (a)(6) of this section.(7) This subsection may not be combined with either of the Limited Offering Exemptions, or subsection (k) of this section to make sales to more than 35 unaccredited security holders during a 12-month period. Except for accredited investors who became security holders pursuant to this subsection, security holders who purchase in sales made in compliance with this subsection are included in the count of security holders under the Limited Offering Exemption subsection (a)(1) of this section or purchasers under the Limited Offering Exemption subsection(a)(2) of this section, but this subsection may be used to exceed the numbers of security holders or purchasers allowed by such sections over an extended period of time.(8) Issuers who offer and sell securities under this subsection only through a securities dealer registered in Texas may do so without filing any notice with the State Securities Board.(9) Notice filing requirements. (A) An issuer who is not a registered securities dealer and who does not sell securities by or through a registered securities dealer shall file a notice on Form 133.29 not less than 10 business days before any sale claimed to be exempt under this subsection may be consummated for sales under paragraph (1)(B) of this subsection, in whole or in part to individual accredited investors, as defined in §107.2 of this title.(B) For the purpose of filing Form 133.29, "business days" means ordinary business days and does not include Saturdays, Sundays, or state holidays.(C) No notice is required for sales made under paragraph (1)(A) of this subsection or under paragraph (1)(B) of this subsection where the sales are made exclusively to institutional accredited investors as defined in § RSA 107.2 of this title.(D) The issuer may be required by the Securities Commissioner to give details concerning any information requested in Form 133.29 and may be required to furnish any additional information deemed necessary by the Securities Commissioner to determine the issuer's business repute and qualifications.(E) Every issuer filing a notice on Form 133.29 shall pay a filing fee of 1/10 of 1.0% of the aggregate amount of securities described as being offered for sale, but in no case more than $500.(10) Accredited investor security holders who purchase in sales made under this exemption are not counted as security holders under the Limited Offering Exemption subsection (a)(1) of this section or purchasers under the Limited Offering Exemption (a)(2) in determining whether any other sales to other security holders or purchasers are exempt under the Private Offering Exemptions. That is to say, this exemption for sales to accredited investors is cumulative with and in addition to the Private Offering Exemptions, and sales made under paragraph (1)(B) of this subsection are not considered in determining whether sales made in reliance on the exemptions contained in the Private Offering Exemptions would be within the numerical limits on the number of security holders or purchasers contained in the Private Offering Exemptions.(11) "Accredited investor" is defined in § RSA 107.2 of this title and for purposes of this subsection, includes any person who the issuer reasonably believes comes within that definition at the time of the sale of the securities to that person.7 Tex. Admin. Code § 109.13
The provisions of this §109.13 adopted to be effective March 1, 1985, 10 TexReg 569; amended to be effective August 29, 1985, 10 TexReg 2999; amended to be effective April 8, 1986, 11 TexReg 1508; amended to be effective March 10, 1987, 12 TexReg 601; amended to be effective January 1, 1988, TexReg 4470; amended to be effective October 31, 1988, 13 TexReg 4851; amended to be effective November 29, 1989, 14 TexReg 6076; amended to be effective November 15, 1990, 15 TexReg 6290; amended to be effective June 8, 1994, 19 TexReg 4195; amended to be effective August 3, 1995, 20 TexReg 5381; amended to be effective April 8, 1997, 22 TexReg 3218; amended to beeffective March14, 1999, 24 TexReg 1769; amended to be effective August 12, 2001, 26 TexReg 5788; amended to be effective June 12, 2002, 27 TexReg 4934; amended to be effective June 21, 2011, 36 TexReg 3715; amended to be effective February 5, 2014, 39 TexReg 492; Amended by Texas Register, Volume 43, Number 50, December 14, 2018, TexReg 8088, eff. 12/23/2018; Amended by Texas Register, Volume 44, Number 45, November 8, 2019, TexReg 6858, eff. 11/12/2019; Amended by Texas Register, Volume 49, Number 28, July 12, 2024, TexReg 5141, eff. 7/18/2024