May 31, 2012
In April 2012, Obama signed the Jumpstart Our Business Startups (JOBS) Act. This act is aimed at helping small emerging private companies raise capital faster, stay private longer and, once ready, go public easier and thrive. How are they doing this? Regulatory changes, particular in 4 key areas:
- The “crowdfunding” exemption: raising capital from small-dollar investors without the numerous regulatory requirements. Private companies can sell up to $1 million of securities to an unlimited number of investors over a 12-month period, provided other requirements are met, of course.
- Expansion of existing exemptions, including permission to publicly advertise offerings through solicitation of private placement investors with net worth of at least $1 million or annual income of at least $200,000. This had previously been prohibited for private placement. A new exemption, dubbed “Regulation A+” will be implemented, which much like a mini public offering, allows private placements up to $50 million to file with SEC.
- Expand maximum shareholders: For private companies that are not quite ready to go public, the JOBS Act will allow them to stay private longer by increasing the threshold that triggers registration from 500 shareholders to 2,000. The condition lies in the type of shareholders as no more than 499 of these shareholders are accredited investors.
- The “IPO On-Ramp”: For newly public companies with less than $1 billion in annual revenues, a transitional on-ramp period of up to 5 years will simplify their SEC reporting and compliance. For instance, qualifying companies will only be required to produce two audited financial statements instead of three and will have reduced disclosure requirements. There will also be a longer phase-in period for implementation of new or revised financial accounting standards.
Overall, the JOBS Act should make life easier for smaller companies, whether they want to remain private or go public. There will, of course, be some say from the SEC though, as they will need to adopt these rules. So stay tuned…
* Thank you to Megan Livesay, Assurance Senior for her contributions to this post.
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