May 7th, 2012 by Wade Kozich
While it is too early to tell, the recently passed JOBS (Jumpstart Our Business Startups) Act which made its way through the House and Senate with rare speed, should make it easier for small companies to raise capital and to avoid becoming a public company until ready. The lighter regulatory burden should help. These changes include:
- New “crowdfunding” exemption allowing a private company to sell up to $1 million of securities to an unlimited number of investors regardless of their sophistication or suitability.
- New rules that allow advertising of offerings through general solicitation to accredited investors.
- New rules that allow private placements up to $50 million if certain requirements are met.
- Increase in the number of shareholders allowed from 500 to 2,000 before SEC registration is required.
- New “IPO On-Ramp” provisions make it simpler for an emerging company with less than $1 billion of revenues to defer complying with SEC requirements over a 5 year phase in period. This provision has received the most press.
There have been many complaints that SEC filing requirements were discouraging companies from raising public type financing and these rules are intended to increase this type of activity and encourage investment in emerging companies that fuel job creation. Let’s all hope this works … it appears to be a step in the right direction.