JOBS Act Serves to Assist Companies with Raising Capital and Jumpstarting the Job Market
TITLE I: REOPENING AMERICAN CAPITAL MARKETS TO EMERGING GROWTH COMPANIES
TITLE II: ACCESS TO CAPITAL FOR JOB CREATORS
TITLE III: CROWDFUNDING
TITLE IV: SMALL COMPANY CAPITAL FORMATION
TITLE V: PRIVATE COMPANY FLEXIBILITY AND GROWTH
Previous securities law required issuers to register with the SEC and start filing periodic reports at such time as any class of their equity securities was held of record by 500 or more persons, unless the issuer had assets of less than $10 million. Title V of the JOBS Act, which is effective immediately, raises the shareholder count ceiling significantly, to a maximum of either 2,000 persons in total or 500 persons who are not “accredited investors.” Furthermore, a company may de-register under the Exchange Act if the number of record holders decreases below 300 persons.
TITLE VI: CAPITAL EXPANSION
Similar to Title V of the JOBS Act, Title VI permits a greater number of record holders of bank and bank holding companies without triggering the registration requirement. Under Title VI, a bank or bank holding company that is an issuer must register when such company has total assets exceeding $10 million and a class of non-exempted equity security held of record by 2,000 or more persons. Previously, the threshold for banks or bank holding companies to register was 500 record holders. However, unlike Title V of the JOBS Act, there is no registration requirement for banks or bank holding companies based on the number of non-accredited investors. A bank or bank holding company may de-register when such company has fewer than 1,200 holders of record.
In addition, the JOBS Act also requires certain federal government agencies to conduct several studies, including the following:
In passing the JOBS Act, President Obama and Congress have sought to increase private companies’ access to capital without some of the burdensome regulations of prior securities law. Proponents of the JOBS Act believe that if the Act is successful, companies that are able to raise additional capital while limiting costs of securities law compliance will be in a better position to, among other things, expand their businesses, create additional jobs, and lower the current unemployment rate. However, opponents of at least some of the provisions of the JOBS Act believe that the Act may lead to an increase in abuse and fraud in our markets. Indeed, on March 13, 2012, Mary L. Schapiro, the Chairman of the SEC, wrote a letter to the Senate Committee on Banking, Housing, and Urban Affairs expressing her concerns that certain provisions of the JOBS Act that ease long-standing regulations would expose investors to harm. In any event, companies should become familiar with the provisions of the JOBS Act as soon as possible and determine whether or not they should take advantage of some of the capital raising tools contained therein.