Is Crowdfunding Legal? Rules for Texas Businesses

Yes, crowdfunding is legal — but how heavily it’s regulated depends entirely on what backers get in return. If you give them a product, a perk, or nothing at all (rewards and donation crowdfunding on platforms like Kickstarter, Indiegogo, and GoFundMe), you operate largely outside securities law. The moment you offer backers a financial stake — equity, a share of profits, or a promise to repay with interest — you are selling securities, and federal and Texas securities rules apply. For a business owner deciding how to fund a venture, that single distinction is the whole ballgame.

This article explains the two kinds of crowdfunding, when securities law kicks in, and the legal paths a small business can use to raise money from the crowd. It is general information, not legal advice for your specific raise.

The Two Worlds of Crowdfunding

Crowdfunding splits into two legal categories that have almost nothing in common beyond the name.

Get this category right before anything else. Treating an equity raise like a Kickstarter campaign is how founders create real legal liability.

Rewards and Donation Crowdfunding

Rewards and donation crowdfunding are legal and low-friction because backers aren’t investing — they’re pre-buying a product or giving a gift. Because there’s no financial return, these campaigns generally aren’t securities and don’t require securities registration. That doesn’t mean no rules apply:

• You must deliver what you promised. Failing to ship rewards you collected money for can draw consumer-protection and deceptive-practices claims. Regulators have pursued campaigns that took money and delivered nothing.
• It’s taxable. Money raised is generally income to your business, even if it arrived as “pledges.”
• Platform terms bind you. Each platform has its own rules on eligibility, fees, and refunds.

For most product launches and community fundraisers, this path is clean: build the campaign, be honest about timelines, and deliver.

Equity Crowdfunding: Now You’re Selling Securities

The instant you offer backers an ownership interest, a cut of profits, or a debt repayment, you’re offering a security. Under the federal Securities Act and the Texas Securities Act, every securities offering must either be registered or fit within an exemption. Registration is expensive and rare for small businesses, so equity crowdfunding is built on exemptions. Three matter most:

1. Federal Regulation Crowdfunding (Reg CF)
2. The Texas intrastate crowdfunding exemption
3. Private-placement exemptions such as Regulation D (often Rule 506) for accredited and limited investors

The first two are the ones designed specifically for raising money from the general public online.

Federal Regulation Crowdfunding (Reg CF)

Reg CF, created by the JOBS Act, lets a company raise money from the public — accredited and non-accredited investors alike — through an SEC-registered intermediary. The core rules:

• Raise cap: up to $5 million in a rolling 12-month period (raised from about $1.07 million in 2021).
• Use a registered intermediary: all Reg CF offerings must run through a registered funding portal or broker-dealer. You can’t do it directly off your own website.
• Investor limits: accredited investors have no cap. Non-accredited investors are limited over a 12-month period — if either annual income or net worth is under $124,000, to the greater of $2,500 or 5% of the greater of income or net worth; if both are $124,000 or more, to 10% of the greater (with an overall $124,000 ceiling). These figures were set in 2022 and are periodically adjusted for inflation.
• Disclosure: you file a disclosure document (Form C) with the SEC, and the financial-statement requirements scale up with how much you raise.

The Texas Intrastate Crowdfunding Exemption

Texas offers its own exemption for businesses that raise money entirely within the state. It’s administered by the Texas State Securities Board under Board Rule § 139.26, which is tied to SEC Rule 147A for intrastate offerings. (An older version, Rule 139.25, has been reserved; § 139.26 is the operative rule.) In general terms, the exemption lets a Texas business sell securities to Texas residents through a registered Texas crowdfunding portal, subject to a notice filing, disclosure to investors, and dollar and per-investor limits set by the Board.

Because those limits and conditions are set by the Board and can change, confirm the current figures and requirements with the Texas State Securities Board (or counsel) before relying on this route. It tends to fit a local business whose owners and investors are all in Texas and who want to stay out of the federal system.

What This Means for a Texas Business

Start by deciding which world you’re in. If you’re pre-selling a product or raising donations, rewards crowdfunding is a straightforward, legal way to fund a launch — deliver what you promise and report the income. If you intend to give backers any financial return, you’re in securities territory: choose an exemption (Reg CF or the Texas intrastate exemption for a public raise, Reg D for a private one), run the offering through a compliant portal where required, and prepare the disclosures. Selling securities without registering or qualifying for an exemption is a serious violation — it can trigger investor rescission rights (investors get their money back), plus civil and regulatory liability. This is the point to get advice before you launch, not after.

Frequently Asked Questions

Do I need to register a Kickstarter or GoFundMe campaign?

No. Rewards and donation campaigns generally aren’t securities, so there’s no securities registration. You still have to deliver what you promised and report the funds as income.

Can I give investors equity through crowdfunding?

Yes — through Regulation Crowdfunding, the Texas intrastate exemption, or another exemption, and generally through a registered funding portal. What you can’t do is sell stock or profit shares to the public without registering the offering or qualifying for an exemption.

How much can I raise through equity crowdfunding?

Federal Reg CF allows up to $5 million in any rolling 12-month period. The Texas intrastate exemption has its own limits set by the Texas State Securities Board; check the current figures before relying on it.

What happens if I sell securities without complying?

It’s a securities-law violation under federal and Texas law. Consequences can include investors’ right to rescind (recover their investment), civil liability, and regulatory enforcement. The cost of doing it wrong dwarfs the cost of doing it right.

Raising money is one of the highest-stakes legal decisions a young company makes, and the rules turn on details specific to your offering. Reidel Law Firm advises Texas business owners on entity setup and capital-raising questions on transparent flat fees — talk to a Texas business attorney before you launch a raise.