How Will The JOBS Act Help Smaller Businesses? Here Are 5 Ways

On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups (JOBS) Act, which will help small businesses and emerging growth companies raise capital and go public:

“The provisions of the JOBS Act represent a watershed change to the laws and regulations governing capital raising for private companies. Some of the provisions – such as the ‘IPO on-ramp’ provisions and the increase in the number of holders triggering mandatory registration and public reporting under the Securities Exchange Act of 1934, are effective immediately. Others, including the new crowdfunding exemption, the removal of the ban on general solicitation for offerings under Rule 506 to accredited investors and Rule 144A to QIBs, and the new exemption modeled on Regulation A, will require SEC rulemaking before they come into force.” (President Obama Signs JOBS Act: Landmark Reform for Small and Emerging Growth Companies Now Law by Sheppard Mullin Richter & Hampton LLP)

For your reference, here’s a look at five key provisions of the JOBS Act and how they will help small companies raise money:

1. Crowdfunding:

“With passage of the JOBS Act, companies can now raise up to $1 million through crowdfunding.  Investors with a net worth of less than $100,000 may now invest 5% of their yearly income or $2,000, whichever is higher.  People with more money will be allowed to invest more, up to 10% of their income. The ball is now in the SEC’s court to lay out some more detailed regulations.” (The JOBS Act and Crowdfunding – Letting Go by Looper Reed & McGraw, P.C.)

2. Advertising:

“Prior to the JOBS Act, no issuer could engage in any form of general solicitation or advertising with respect to the securities being offered. The JOBS Act eliminates this ban under Rule 506, provided the issuer takes steps to ensure that all purchasers are ‘accredited investors.’” (Small Businesses: How the Jumpstart Our Business Startups (JOBS) Act Affects You by Varnum LLP)

3. The IPO On-Ramp:

“The legislation will create a transitional process, or ‘on ramp,’ by which emerging growth companies will transition to the full rigors of SEC compliance through a combination of scaled disclosure requirements and transitional compliance burdens. It also includes provisions that will enable eligible companies to communicate more freely with institutional investors to determine their interest in a potential IPO.” (Congress Has Adopted Legislation to Facilitate Public and Private Capital Formation by Emerging Growth Companies by Proskauer Rose LLP)

4. Reduced reporting requirements:

“The Act reduces a number of existing financial disclosure, corporate governance and other regulatory burdens on a broad range of small to relatively large companies (‘emerging growth companies’ ) that have gone public since December 8, 2011, are in the process of going public or intend to go public in the future.” (New Law Facilitates Corporate Capital Raising by Fenwick & West LLP)

5. Higher threshold for public reporting:

“Currently, a company is required to register and file reports with the SEC if it has more than $10 million in assets and 500 or more shareholders of record. The JOBS Act increases the shareholder of record threshold from 500 to 2,000, so long as not more than 499 of the shareholders are non-accredited investors. Additionally, shareholders who received their shares pursuant to exempt transactions under an employee compensation plan would not be counted toward the new shareholder threshold.” (Jumpstart Our Business Startups (JOBS) Act by Venable LLP)

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