On March 8, 2011, the House of Representatives approved the JOBS (Jumpstart Our Business Startups) Act by a vote of 390 to 23. The JOBS Act is a package of six bills aimed at reviving the market for initial public offerings and other financing options for smaller companies by easing the rules governing capital formation in an effort to encourage private-sector job creation.
The JOBS Act would make the following changes to the rules governing capital formation:
1. Create a new category of issuers with less than $1 billion in annual gross revenue called “Emerging Growth Companies.” An Emerging Growth Company would be temporarily exempt from compliance with certain Dodd-Frank, Sarbanes-Oxley and other regulations for 5 years after going public unless the company exceeds $1 billion in revenue or becomes a large accelerated filer during that period.
2. Remove the prohibition against general solicitation for offerings of securities exempt from registration under Regulation D, so long as all purchasers of such securities are accredited investors.
3. Remove restrictions prohibiting “crowdfunding” and permit companies to raise up to $1 million of equity capital from unaccredited investors. The limit would increase to $2 million if the company provides prospective investors with audited financial statements. Individual investments would be limited to the lesser of $10,000 or 10% of the investor’s annual income.
4. Increase the threshold for offerings of securities exempt from registration under Regulation A from $5 million to $50 million.
5. Increase the threshold number of shareholders requiring companies to register with the SEC from 500 to 1,000.
6. Increase the threshold number of shareholders of a community bank requiring the bank to register with the SEC from 500 to 2,000.
The Senate has not yet voted on this legislation. We will provide a full client alert if the JOBS Act is approved by the Senate and becomes law.
A link to the JOBS Act is below:
http://docs.house.gov/billsthisweek/20120305/CPRT-112-HPRT-RU00-HR3606Floor.xml