Legislation Aims to Ease Capital Raising Burdens
While the current economic climate continues to challenge many emerging businesses, the stage appears set for an easing of regulatory burdens and limits on capital raising.
The President and Congress have expressed their intention to pass multiple federal securities laws amendments included in the Jumpstart Our Business Startups, or "JOBS," Act (H.R. 3606), which was recently passed by the House. If enacted, this bill could reduce capital raising costs for emerging businesses and provide more freedom to solicit investors. Following is a brief summary of the JOBS Act provisions recently passed by the House (companion measures are currently being debated in the Senate):
Reopening American Capital Markets to Emerging Growth Companies Act
For companies that go public, this bill would reduce costs by phasing-in reporting requirements over five years or until the company has $1 billion in annual gross revenue.
The Access to Capital for Job Creators Act
This bill would eliminate longstanding prohibitions on the general solicitation of investors under SEC Regulation D and allow companies to engage in certain advertising efforts targeted toward investors.
The Entrepreneur Access to Capital Act ("Crowdfunding")
This bill would allow an emerging business to raise up to $1 million (or $2 million if audited financials are provided) from an unlimited number of investors without having to verify the investors' accredited investor status (commonly known as "crowdfunding"). In crowdfunded offerings relying upon this exemption, investments from any one investor during the previous 12-month period would be limited to the lower of $10,000 or 10 percent of the investor's annual income.
The Small Company Capital Formation Act
This bill would increase the maximum amount of capital that can be raised in an SEC Regulation A offering from $5 million to $50 million. Regulation A offerings are scaled-back forms of registration with less disclosure and regulatory requirements than a full registered offering under the Securities Act of 1933.
The Private Company Flexibility and Growth Act
- Would increase from 500 to 2,000 the threshold for the number of shareholders that trigger the requirement for a company to register with the SEC. The bill also would increase the record shareholder registration threshold for banks and bank holding companies from 500 to 2,000.
- Would allow more public companies to go private and would avoid certain onerous rules applicable to Exchange Act filers, such as Sarbanes-Oxley and various Dodd-Frank provisions
President Obama and the Congressional leaders from both parties have publicly expressed their support for the major policy provisions of the JOBS Act. With this bipartisan support, passage of the JOBS Act or a very similar set of reforms appears likely to occur before the election. We will provide further updates as the JOBS Act makes its way through Congress to the President's desk.