Obama’s JOBS Act: Legal Analysis & Commentary

“Come together, right now, over…” JOBS!

In late March, both Congressional chambers overwhelmingly voiced their support for the Jumpstart Our Business Startups (JOBS) Act. The bill, which President Obama signed into law on April 5, 2012, contains a variety of measures that will ease barriers for companies seeking to raise money and go public.

For your reference, we’ve put together a roundup of legal advisories on the Act and its expected benefits for small and medium businesses.

Start with this video interview. In a wide-ranging conversation, Bloomberg Law’s Lee Pacchia and Anna Pinedo, partner at Morrison & Foerster LLP, discuss (among other things): what the new law is purported to do, capital raising issues for emerging companies, and whether concerns that the legislation might weaken investor protections are indeed true…

(Link: Lawyer: JOBS Act Addresses ‘Urgent Need’ For Startups)

JOBS Act Commentary:

President Obama Signs the Jumpstart Our Business Startups (JOBS) Act: An Attempt to Ease Access to Capital and Reduce Regulatory Hurdles for Small and Emerging Businesses (Lewis and Roca LLP)

“In a rare product of election year bipartisanship, the Act attempts to make it easier for small and emerging businesses to raise capital and create jobs by relaxing several existing securities regulations. However, because the Act passed so swiftly, it did not receive the scrutiny usually given to such extensive legislation. Accordingly, numerous ambiguities and questions remain which will need to be resolved through SEC rulemaking or otherwise.” Read on»

JOBS Act — Will It Make Capital More Accessible for My Business? (Jackson Walker)

“The JOBS Act is an amalgamation of various bills the combined impact of which is intended to provide entrepreneurs, start-ups and small businesses increased access to the capital markets while at the same time provide average investors increased investment opportunities. The JOBS Act considerably alters the regulations surrounding public and private security offerings and, for certain issuers with revenues of less than $1 billion, reduces the burden of certain periodic reporting obligations.” Read on»

New JOBS Act Facilitates Private and Public Capital Formation (Kilpatrick Townsend)

“Although a few provisions of the JOBS Act are self-effectuating from its effetive date, the JOBS Act requires substantial rulemaking by the Securities nd Exchange Commission (“SEC”) for full implementation of its reforms. Given he substantial SEC rulemaking backlog (much of which relates to required actions under the Dodd-Frank Act), the rulemaking timelines in the JOBS Act ill be extremely difficult to meet.” Read on»

President Obama Signs JOBS Act: Landmark Reform for Small and Emerging Growth Companies Now Law (Sheppard Mullin Richter & Hampton LLP)

“Private companies that already have a substantial shareholder base should think about what possibilities are now open to them given more headroom on the number of holders. In some cases, changes may be needed to shareholder and investor agreements either to facilitate or prevent secondary markets in their shares.” Read on»

JOBS Act Will Significantly Relax Restrictions on Capital Raising (Foley Hoag LLP)

“Equally significantly, EGCs and “persons authorized to act on their behalf” may test the waters both before and after the filing of the registration statement. That is, they may engage in oral and written communications with ‘qualified institutional buyers’ or ‘accredited investors’ to determine their ‘interest in a contemplated securities offering.’ Significantly, these communications will not have to be filed with the SEC as free writing prospectuses, as previously.” Read on»

Capital Markets Relief: JOBS (Jumpstart Our Business Startups) Act Eases Regulatory Barriers to IPOs and Other Capital Raising Alternatives (K&L Gates LLP)

“An EGC may choose to comply with the executive compensation disclosure requirements applicable to smaller reporting companies under Item 402 of Regulation S-K, and will not be subject to the requirement under the Dodd-Frank Act to disclose the ratio of CEO compensation to median employee compensation.” Read on»

JOBS Act to Make It Easier and Less Burdensome to Raise Capital in Securities Offerings (Sutherland Asbill & Brennan LLP)

“While the JOBS Act preempts state securities laws concerning registration, documentation and offering requirements for securities issued pursuant to the crowdfunding exemption, it does not limit or impact states’ enforcement actions concerning fraud, deceit or unlawful conduct of an issuer, funding portal, or any other person or entity using the exemption.” Read on»

President Obama Signs New Capital Formation Bill (Bilzin Sumberg Baena Price & Axelrod LLP)

“Related to the relaxed manner of offering restrictions on private placements, the JOBS Act clarifies that Internet-based and other platforms that match prospective investors with businesses raising capital will not be required to register as a securities broker due to their matching services in connection with securities offered and sold in compliance with Rule 506.” Read on»

Signing of JOBS Act Brings Wholesale Reform to Securities Laws With Hope of Facilitating Capital Raising (Manatt, Phelps & Phillips, LLP)

“The JOBS Act substantially liberalizes many aspects of the securities offering and registration process for companies. The law’s intent is that changes in the securities law will facilitate capital raising by companies and cause downstream growth in the job market and the economy generally.” Read on»

Major Reforms Enacted to Stimulate Public and Private Capital Raising in the United States (Osler, Hoskin & Harcourt LLP)

“These rule changes will primarily be of interest to Canadian issuers that qualify as EGCs and that intend to file an IPO registration statement with the SEC but are not eligible to use the U.S.-Canada Multijurisdictional Disclosure System because they do not meet the Canadian reporting history or public float requirements.” Read on»

Final JOBS Act Signed: Significant Reform Impacts Small Business (Akerman Senterfitt)

“The JOBS Act directs the SEC, within 90 days of enactment, to revise its rules to permit general solicitation and advertising in connection with the private placement of securities under Rule 506 of Regulation D, as long as the purchasers are all accredited investors, and under Rule 144A, as long as the purchasers are all reasonably believed to be qualified institutional buyers.” Read on»

JOBS Act to Ease Capital Formation for Public and Private Companies and Reduce Regulatory Burdens on Emerging Growth Companies Alert 1 of 2: Focus on the “IPO On-Ramp” (Mintz Levin)

“Although the JOBS Act will result in significant changes to the federal securities laws, many of the changes are not self-effectuating and require rulemaking by the SEC, which in some cases could take up to a year or longer to complete. Moreover, given that the SEC has expressed concerns about the OBS Act’s loosening of existing regulations, the SEC could, in exercising its rulemaking authority, require changes that are more restrictive than what Congress has proposed if the SEC believes these changes are necessary for the protection of investors.” Read on»

JOBS Act to Ease Capital Formation for Public and Private Companies and Reduce Regulatory Burdens on Emerging Growth Companies Alert 2 of 2: Focus on Easing Capital Formation for Private Companies (Mintz Levin)

“Congress enacted the JOBS Act for the express purpose of ‘increas[ing] American job creation and economic growth by improving access to the public capital markets for emerging growth companies.’ The number of initial public offerings in the United States has fallen dramatically since 2000, in part because of increased costs of regulatory compliance as a result of the Sarbanes-Oxley Act of 2002 and other burdens, according to the IPO Task Force of the National Venture Capital Association, which has championed the JOBS Act’s reforms through the legislative process over the past year.” Read on»

Jumpstart Our Business Startups (“JOBS”) Act Eases Restrictions on Rule 144A and Private Offerings – ABS Considerations (Orrick, Herrington & Sutcliffe LLP)

“ABS issuers, underwriters and investors, however, will be interested in the sections of the Act that amend the exempt offering provisions of the Securities Act of 1933 and direct the Securities and Exchange Commission to revise regulations to permit general solicitation and advertising in connection with offerings that are exempt from registration under the Securities Act.” Read on»

The JOBS Act and Crowdfunding – Letting Go (Looper Reed & McGraw, P.C.)

“It will be easier for companies with nothing more than in idea to swindle investors.  This is always the balancing act of a mixed economy.  We want to have a free and robust market while protecting the unsuspecting. Yes, there will be more fraud.  People were swindled before this law and will be after.  But, I’ve got to believe people who want to invest in startups through crowdfunding will be going in with their eyes open.” Read on»

President Signs the JOBS Act (Ropes & Gray LLP)

“In addition to eliminating the prohibition on general solicitation for funds exempt from public reporting, the JOBS Act also increases the equityholder threshold for companies required to register under the Exchange Act.” Read on»

Jumpstart Our Business Startups (JOBS) Act (Venable LLP)

“The JOBS Act reforms the initial public offering (IPO) process for ‘emerging growth companies,’ which the Act broadly defines as any issuer that had less than $1 billion in revenues in its last fiscal year. Companies that completed an IPO on or before December 8, 2011 would not qualify as an emerging growth company. The JOBS Act eases the regulatory burdens of the IPO process for an emerging growth company…” Read on»

NASAA Slams The JOBS Act, But Have The States Really Been Handcuffed? (Allen Matkins Leck Gamble Mallory & Natsis LLP)

“NASAA isn’t in the business of firing off rockets but it did launch a missile yesterday targeted directly at the JOBS Act… Not surprisingly, NASAA is most exercised about further preemption of state qualification (registration) requirements with respect to the offer and sale of securities.   In the words of Queen Gertrude, NASAA ‘doth protest too much, methinks’.” Read on»

Small Businesses: How the Jumpstart Our Business Startups (JOBS) Act Affects You (Varnum LLP)

“Smaller companies that need to raise capital often rely on Rule 506 of Regulation D, a ‘private offering’ exemption from the requirement to register securities offerings with the Securities and Exchange Commission and state securities agencies. Prior to the JOBS Act, no issuer could engage in any form of general solicitation or advertising with respect to the securities being offered.” Read on»

Corporate and Securities Alert: New Law Facilitates Corporate Capital Raising (Fenwick & West LLP)

“The Act permits emerging growth companies to engage in oral or written communications, with potential investors that are qualified institutional buyers or institutional accredited investors, in order to determine whether those investors might have an interest in a contemplated securities offering.” Read on»

Congress Has Adopted Legislation to Facilitate Public and Private Capital Formation by Emerging Growth Companies (Proskauer Rose LLP)

“In terms of easing requirements regarding general solicitations, Rule 506 of Regulation D will be amended to permit general solicitation and general advertising, as long as all purchasers are accredited investors. The prohibitions in Rule 144A offerings on general solicitation, general advertising and making offers to investors who are not qualified institutional buyers will be eliminated, as long as all purchasers are qualified institutional buyers. Reasonable steps must be taken to verify that purchasers are accredited investors or qualified institutional buyers, as applicable, using as-yet undetermined procedures.” Read on»

JOBS Act: Impact and Open Questions (White & Case LLP)

“The Act requires the SEC to add a new Securities Act exemption for issuances of up to US$50 million of securities in any 12-month period. The SEC is expected to achieve this by modifying the exemption under Regulation A, which currently has a US$5 million limit. The Act does not set any time limit for the SEC to promulgate the new rules.” Read on»

My Favorite Part of the JOBS Act (Davis Wright Tremaine LLP)

“Not to be cynical, but we will have to wait and see if the SEC’s proposed regulations actually carry out the intent of the JOBS Act. For instance, Section 201 states that the new rules are going to ‘require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission.’ Let’s hope the SEC does not impose burdensome information gathering and disclosure requirements on companies.” Read on»

Coming Soon to a Start-up Near You: Crowdfunded Capital (Lane Powell PC)

“What remains to be seen is the extent to which third parties — so called ‘funding portals’ — will step up to provide the infrastructure necessary to conduct these offerings. Currently, there are a small number of such portals operating primarily as gateways for issuers to reach accredited investors. However, with the floodgates opening to participation by non-accredited individuals, it is unclear whether these existing market players will have the capacity to handle this new influx of investors, the obligations imposed on funding portals by the JOBS Act, and the costs that may be imposed upon issuers by those funding portals for accessing their platforms.” Read on»

The Jumpstart Our Business Startups Act – Important New Legislation Significantly Eases Capital-Raising Regulation and Reporting Requirements (King & Spalding)

“Previously, a company would be required to file periodic reports with the SEC if it had more than 500 holders of record of a particular class of equity. The JOBS Act raises this threshold to 2,000 holders of record or 500 non-accredited investors. The Act also excludes, for purposes of determining whether the threshold has been met, securities received under employee compensation plans and securities issued in crowdfunding transactions. This threshold increase will be effective immediately upon signing of the Act into law by the President.” Read on»

Jumpstart Our Business Startups Act – Implications for Issuers and Financial Institutions (Orrick)

“…because the JOBS Act did not alter the liability regime under U.S. securities laws, it remains unclear how market practices will change or develop for issuers and financial institutions. Such new market practices will depend, in large part, on the rules and guidance provided by the Securities Exchange Commission (the “SEC”) and other regulatory agencies such as the Financial Industry Regulatory Authority (“FINRA”)…” Read on»

[Also see from Orrick: The JOBS Act]

Crowdfunding – There Will Be Investor Losses (Allen Matkins Leck Gamble Mallory & Natsis LLP)

“Among other things, the JOBS Act will legalize ‘crowdfunding’ pursuant to a new exemption (Section 4(6) of the Securities Act of 1933).  Given the small amount of money  that can be raised under this new exemption (the aggregate amount of securities sold to all investors within any 12-month period may not exceed $1 million), I expect that many of the issuers that use it will be start-ups just trying to get off the ground.  Many, if not most, of these companies will fail and there will be investor losses.” Read on»

Jobs Act Awaiting President’s Signature (Wilson Sonsini Goodrich & Rosati)

“The JOBS Act is a collection of legislative measures that have been introduced over the past year and focus on the ability of emerging growth companies to raise capital (both publicly and privately) and to determine the timing of becoming a public company. It codifies many of the reforms to the initial public offering (IPO) and capital-raising processes presented to the U.S. Department of the Treasury by the IPO Task Force.” Read on»

How Will the JOBS Act Affect You? (Lowenstein Sandler PC)

“The JOBS Act will make it easier for companies to raise money privately and will allow private companies to stay private longer. As described below, many of these provisions remain subject to further SEC rulemaking and accordingly will not be effective immediately when President Obama signs the JOBS Act.” Read on»

The JOBS Act (Morrison & Foerster LLP)

“Title I of the JOBS Act, titled ‘Reopening American Capital Markets to Emerging Growth Companies,’ establishes a new category of issuer, an ‘emerging growth company,’ for which certain disclosure and other requirements will be phased in over time following the issuer’s IPO. The Act amends the Securities Act and the Exchange Act, to add a definition of an ‘emerging growth company.’ An emerging growth company is defined as: an issuer with total gross revenues of less than $1 billion (subject to inflationary adjustment by the SEC every five years) during its most recently completed fiscal year.” Read on»

Congress Passes JOBS Act – Legislation Seeks to Aid Issuers in Raising Private and Public Capital (Proskauer)

“The JOBS Act specifies that offerings under Rule 506 will not be deemed public offerings under “federal securities laws” if the issuer engages in general solicitation or advertising so long as the only investors in such offerings are accredited investors. As a result, private fund managers should be able to engage in previously prohibited general solicitation and advertising when raising a fund…” Read on»

Chowing Down On The JOBS Act And Ralston Purina (Allen Matkins Leck Gamble Mallory & Natsis LLP)

“Assuming that President Obama signs this bill, the JOBS Act will dramatically change the longstanding limitations on private offerings. In Section 201 of the JOBS Act, Congress orders the Securities and Exchange Commission to adopt rule changes within 90 days to provide that the prohibition against general solicitation or general advertising contained in Rule 502(c) of Regulation D does not apply to offers and sales of securities made pursuant to Rule 506, provided that all purchasers of the securities are accredited investors.” Read on»

The March Toward Reform For Emerging Growth Cos. (Sheppard Mullin Richter & Hampton LLP)

“In addition, the JOBS Act directs the SEC to amend Rule 144A to permit general solicitations of securities sold under Rule 144A that reach investors who are not QIBs, provided that only QIBs (or institutions reasonably believed to be QIBs) purchase such securities.” Read on»

Senate Passes Revised Version of JOBS Bill (Katten Muchin Rosenman LLP)

“Emerging growth companies (a) would be exempt from the attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, (b) would only have to present two years of audited financial data and selected financial information in a registration statement for an initial public offering, and (c) would be exempt from certain other disclosure requirements including selected disclosures relating to executive compensation.” Read on»

The Entrepreneur Access to Capital Act and What It Could Mean for Startups (Sheppard Mullin Richter & Hampton LLP)

“Today, most emerging growth companies wishing to raise capital without SEC registration limit their offerings to accredited investors and refrain from public solicitation and advertising. The SEC currently defines the term accredited investor, generally, to include numerous types of institutional investors and individuals with a net worth, exclusive of home, of at least $1 million or an annual income of at least $200,000 or $300,000 if the income of a spouse is included.” Read on»

Corporate and Securities Alert: New Law Facilitates Corporate Capital Raising (Fenwick & West LLP)

“The Act provides that emerging growth company may submit confidentially to the SEC a draft of its registration statement and amendments thereto without making the documents available to the public through the SEC’s EDGAR filing system. This process is conditioned upon the issuer’s publicly filing its initial confidential submission (and all amendments) not later than 21 days before the date on which the issuer begins to conduct its road show.” Read on»

Congress Passes the JOBS Act to Simplify Capital Formation (Morgan Lewis)

“The JOBS Act permits an emerging growth company or its agent to communicate with potential investors that are qualified institutional buyers or institutions that are accredited investors to determine whether such persons might have an interest in a contemplated securities offering, either prior to or after the date of filing of a registration statement with respect to such offering.” Read on»

Crowdfunding — The New Landscape Of Raising Capital In The Social Networking World In Which We Live (Fox Rothschild)

“Backed by the President and many high-profile entrepreneurs and interest groups, the bill is viewed by many as the marriage of the Internet and the world of financing for start-ups and emerging businesses — and a long-awaited advance in raising capital for these companies.” Read on»

The JOBS Act: Congress Overhauls Laws Governing Capital Raising for Most Issuers and Reporting for New Public Companies (Katten Muchin Rosenman LLP)

“The JOBS Act significantly expands the options issuers (including both operating companies and investment funds) have to raise capital without registering their securities under the Securities Act of 1933 (the Securities Act). Such issuers can now engage in general solicitation and make use of general advertisements when selling to accredited investors under Regulation D, so long as they take ‘reasonable steps’ to ensure that all purchasers are accredited investors.” Read on»

U.S. Securities Laws Poised for Major Shift as ‘JOBS Act’ Goes to President for Signature (Reed Smith)

“The legislation directs the SEC to conduct a study of the impact of the move to quoting securities on exchanges in one-penny increments (“decimalization”), which some observers have pointed to as a contributing factor in the decline in IPO volume over the past decade by reducing the incentives for investment banks to make a market for small and mid-size offerings.” Read on»

Congress Passes JOBS Act – Legislation Seeks to Aid Issuers in Raising Private and Public Capital (Proskauer Rose LLP)

“Because of the preemption of federal securities laws over state securities laws, the JOBS Act is not expected to affect the availability of state ‘blue sky’ law registration exemptions for Rule 506 offerings. However, an issuer that does engage in general solicitation or advertising could lose the benefit of other potential state “blue sky” registration exemptions, which could be preferable to Rule 506 exemptions because of lower fees or no filing requirements.” Read on»


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