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Executing Your Raise in Texas: 506(b) vs 506(c), Advertising Hygiene, Finders, Integration, and Real‑World Scenarios

Choosing between 506(b) and 506(c) determines how you market your raise and verify investors in Texas. This guide covers advertising hygiene, finder risk, integration sequencing under Rule 152, and real-world scenarios for common raise structures.

Promise Legal Staff

• 4 min read
Executing Your Raise in Texas: 506(b) vs 506(c), Advertising Hygiene, Finders, Integration, and Real‑World Scenarios
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Choose your lane first: 506(b) or 506(c)

If you can keep outreach private → 506(b)

  • No general solicitation. Keep to known, substantive relationships and one‑to‑one outreach.
  • Practically, limit purchasers to accredited investors for startup rounds.
  • Provide a coherent disclosure set (deck, memo/PPM if warranted, financials, risk factors).
  • If a Texas resident buys, file the Texas notice via EFD.

If you need to market publicly → 506(c)

  • General solicitation allowed (web/social/PR/events).
  • You must take reasonable steps to verify accreditation (third‑party letters from broker‑dealer/RIA/CPA/attorney or document review). Self‑certification alone is insufficient.
  • Maintain consistent, accurate messaging across your site, data room, and press.
  • File Texas notice after the first Texas sale.
Five‑year reuse window (506(c)): If an investor was verified as accredited within the past 5 years in a 506(c) offering and certifies they remain accredited, you may rely on that prior verification—document it.

What is “general solicitation”?

General solicitation includes:

  • Public posts (“We’re raising,” terms, target amounts), landing pages collecting interest, paid ads
  • Open demo days and conference pitches to the public
  • Mass emails to purchased lists

Rule 148 (demo days) may exclude some sponsor‑run events from being solicitation (e.g., universities, governments, nonprofits, angel groups, incubators/accelerators) if specific conditions are met. If you can’t clearly meet Rule 148, assume it’s general solicitation and operate under 506(c).

Website & social hygiene (practical rules)

Running 506(b):

  • Remove/avoid current offering terms and “we’re raising” language on public pages.
  • Gate investor materials (login‑only data room).
  • No lead‑gen ads to fill a private pipeline.
  • If you must present at broad events, avoid discussing a current raise.

Running 506(c):

  • It’s fine to be public, but anti‑fraud still applies—keep all claims accurate and consistent with your disclosure set.
  • Archive verification proofs contemporaneously.

Finders & broker‑dealer risk in Texas

High‑risk pattern: Paying transaction‑based compensation (percent of funds, success fees, per‑investor bounties) to unregistered people who introduce/solicit investors. Expect enforcement and rescission risk.

Issuer exemption (limits):

  • Your owners/officers/directors/employees are not dealers only if all are true:
    1. not hired to sell securities,
    2. selling activities are incidental to bona fide non‑securities duties, and
    3. compensation is based entirely on those non‑securities duties (no commissions/bonuses keyed to capital raised).

Safer paths:

  • Use a licensed broker‑dealer (with agents licensed in Texas).
  • For unlicensed advisors, limit to non‑solicitation services; pay hourly/flat fees not contingent on funds raised.
  • Equity for services: use time‑based vesting for bona fide services; avoid vesting triggers tied to introductions/dollars raised.

Intrastate & Reg CF (brief guides)

Texas intrastate (Rule 147/147A + state exemption):

  • Keep issuer, offers, and sales within Texas (strict).
  • Gate marketing to Texas and confirm residency.
  • One out‑of‑state sale or widely accessible web page can blow the exemption.
  • Confirm any Texas filing and fee details on TSSB; some steps may be through EFD.

Regulation Crowdfunding (Reg CF):

  • Conducted through a registered portal/broker‑dealer.
  • Use the portal’s Form C, Q&A, updates, and closing workflow.
  • Outside the portal, stick to tombstone‑style communications and link back to the portal.
  • Texas anti‑fraud still applies.

Integration & sequencing (Rule 152)

Risk: Closely timed offerings may be treated as one offering (“integration”), potentially breaking your exemption (e.g., public 506(c) activity tainting a nearby 506(b)).

Guardrails:

  • 30‑day safe harbor (Rule 152(b)(1)): Offerings separated by >30 days aren’t integrated, provided purchasers in any no‑solicitation offering weren’t solicited by general solicitation (or you had a pre‑existing, substantive relationship).
  • Principles‑based test: Even inside 30 days, keep documentation showing each offering complied independently.
  • Separate funnels: Distinct landing pages, decks, lists; public traffic goes only to your 506(c) channel.

Real‑world scenarios (how to execute)

1) Texas‑only friends‑and‑family (506(b))

  • Keep outreach private; use standardized subs + investor questionnaire.
  • Instruments: SAFEs or convertible notes (they’re securities).
  • After first sale: file Form D and Texas notice via EFD (verify fee).
  • Avoid celebratory fundraising posts until after closing.

2) Broadly advertised 506(c) with TX & CA investors

  • Align public messaging and verification (third‑party letters or docs).
  • File federal Form D; then Texas/California notices (EFD where available).
  • Keep verification records current; consider reuse window when applicable.

3) Texas intrastate seed

  • Confirm eligibility; gate marketing/residency.
  • Apply legends/resale restrictions per intrastate rules.
  • Confirm any Texas filings (check TSSB), including whether EFD is used.

4) Reg CF with Texas investors

  • Run everything in‑portal; keep off‑portal messaging compliant.
  • If running other offerings, harmonize disclosures and avoid integration risk.

Founder documents & devices (quick guidance)

  • PPM or disclosure‑lite?
    • All‑accredited/simple terms → disclosure‑lite may suffice.
    • Complexity, non‑accredited, or frontier risk → PPM recommended.
  • SAFEs/convertible notes: Treat as securities; disclose valuation cap/discount, interest (notes), maturity, conversion scenarios.
  • Keep a change log and update all pending investors when material terms change.

Related reads (link internally):

  • Convertible note caps and interest rates
  • Convertible note liquidation preferences
  • Series Seed Preferred Stock
  • How many shares to authorize
  • Crowdfunding for startups

References & Sources

Feedback & Corrections

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Disclaimer

Informational only; not legal advice. Requirements change—verify current Texas rules/fees on the TSSB site and consult counsel for your situation.