This is a brief introductory overview for an important bill that was passed in April 2012, the Jumpstart Our Business Startups Act (JOBS Act). In light of the recession and the botched Facebook IPO, there have been myriad articles pointing out alarming “trends” in the decreasing amount of IPO’s in the United States. It seems that Congress and the President were able to act on this and finally push something through, which has led to the JOBS Act. However, that still leads to one big question: What is the JOBS Act and how does a company know if it benefits from this Act? The information I have provided below provides you with the basics you to need to know to become the JOBS Act pro.
Passed by the 112th Congress of the United States, the JOBS Act (hereby referred to as “the Act”) is an act to “increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies.” The Act’s two primary goals are:
- Reduce regulatory paperwork for and provide exemptions from prior requirements to small “emerging growth companies” and the banking community who serves them. For instance:
- An emerging growth company “need not present more than 2 years of audited financial statements in order for the registration statement of such emerging growth company with respect to an initial public offering of its common equity securities to be effective…”
- An emerging growth company need not “present selected financial data in accordance with section 229.301 of title 17, Code of Federal Regulations, for any period prior to the earliest audited period presented in connection with its first registration statement that became effective under this Act or the Securities Act of 1933….”
2. Make the necessary threshold of requirements higher for a company before it becomes obligated to register with the Securities and Exchange Commission. For example,
- “The holders of record threshold for triggering Section 12(g) registration for issuers (other than banks and bank holding companies) has been raised from 500 or more persons to either (1) 2,000 or more persons or (2) 500 or more persons who are not accredited investors” (Source: SEC Website)
Following these goals, the Act is meant to encourage “emerging growth companies” to pursue IPOs instead of private financings. However, what is and what is not an emerging growth company? According to the Act;
“The term ‘emerging growth company’ means an issuer that had total annual gross revenues of less than $1,000,000,000 during its most recently completed fiscal year…an issuer shall not be an emerging growth company for purposes of such Acts if the first sale of common equity securities of such issuer pursuant to an effective registration statement under the Securities Act of 1933 occurred on or before December 8, 2011.”
There are also a number of regulatory changes one should be aware about. The Act permits companies to file certain documents with the SEC for review on a confidential basis prior to the public filing. Emerging Growth Companies (herein referred to as “EGCs”) also now have the ability to communicate with investors in connection to their securities offerings. Research analysts of managing underwriters can publish reports on the offering at any time throughout the process now, not only 40 days after like before. Furthermore, there are changes that lessen the strictness of the prior rules surrounding the auditing process and accounting standards, and, among other things, EGCs will no longer be required to disclose certain information about executive compensation relative to the company’s financial performance.
The last facet of the Act that I want to highlight is that of the “Crowdfunding” exemption. Crowdfunding is a tactic where private financing is undertaken by pooling together the assets of numerous small investors. Prior to the Act, any private companies that underwent this type of private financing were required to register with SEC. Following the Act’s enactment, private companies will be exempt from securities registration, even when they are Crowdfunding.
In conclusion, the JOBS Act seems to spell out a less regulated, more capital-accessible system with ‘lightened’ paperwork. Its effect is yet to be seen as it is still too early to tell, but should the Acts’ changes continue forth without any hiccups and the economy continue to hold steady then it could very well be that Corporate practices of law firms, the investment banks, and the companies themselves out there looking to go public will soon become busy again.
Warm regards,
P. Anthony Arias
Author’s note: The above explanation is by no means to be viewed as an exhaustive one, and is missing a multitude of details that one should look to a lawyer for. The purpose behind this was to provide a more simplistic, albeit not complete, view of the JOBS act so that my readers out there can be a little more informed about regulations in the US economy and where exactly we stand in regards to how our congress has sought to ensure a healthy private sphere in America.
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