JOBS Act Jumpstart Our Business Startups Benefits amp Risks
JOBS Act (Jumpstart Our Business Startups) - Benefits & Risks Skip to content
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The Act created a new category of equity issuers, an emerging growth company (EGC), which is subject to SEC regulations over a five-year period. A company must be privately held and have less than $1 billion in revenues to have EGC status, and can retain that status for a maximum of five years or until it exceeds $1 billion in gross revenues. Under the Act, an EGC: Is exempt from the rule giving shareholders the right to a vote on executive compensation, which shareholders now have under existing regulations.Is required to provide only two years of audited financial statements for an initial public offering (IPO), rather than three years as is now required.Is not required to hire an independent auditing firm to provide an opinion on financial controls as required under Sarbanes-Oxley.Can provide analysts’ research reports to prospective investors or the public immediately before and after the public offering – this activity had been prohibited to avoid analysts being pressured to issue favorable opinions of securities which their employers have underwritten. 2. Allowance of Advertising and General Solicitations of Potential Investors
Under the previous provision of Regulation D, securities issuers were banned from using any “advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, and any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.” Originally approved by the House as H.R. 2940 The Access to Capital for Job Creators Act in November 2011, JOBS lifts this ban on general solicitation or advertising for Regulation D private placements typically used by small companies to raise capital. 3. Provision for “Crowdfunding”
The Act, previously passed by the House as H.R. 2930, The Entrepreneur Access to Capital Act, was amended in the Senate and allows companies to publicly solicit investors in two groups: Investors with an annual income or net worth of $100,000 can invest up to the greater of $2,000 or 5% of their annual income or net worth.Investors with an annual income or net worth greater than $100,000 can invest up to the greater of 10% of their annual income or net worth. An offering document must be filed with the SEC, but no registration is required. Broker-dealers sponsoring the offering must be registered with the SEC, and companies are able to raise up to $1 million annually. Purchasers are required to hold any securities bought under this provision for a minimum of one year. JOBS effectively eliminates the need for an accredited investor as defined in Rule 501 of Regulation D. To be recognized as an “accredited investor,” an individual was required to have a net worth exceeding $1 million excluding the value of his or her home, or income exceeding $200,000 in the two years previous to the offering, and reasonable expectation of the same income level in the year of the offering. 4. Relaxed Initial Public Offering (IPO) Rules Through Regulation A
H.R. 1070 The Small Company Capital Formation Act, passed by the House in 2011, reforms SEC Regulation A to allow a company to raise up to $50 million as long as there are audited financial statements with a simplified registration and offering circular approved by the SEC. Companies using this method of IPO are exempt from SEC regulations and state securities, or “blue sky” laws. A blue sky law is a state law that regulates the offering and sale of securities within state boundaries. 5. Delayed Reporting and Registration
Formerly titled as H.R. 2167, The Private Company Flexibility and Growth Act, and sometimes referred to as the “Facebook” regulation, the Act raises the 500 shareholder limit to 2,000 shareholders before registration with the SEC is required. Stock issued to employees is not included in the calculations. This provision enables a company to retain its private status as it grows, without being forced to implement a public offering prematurely. 6. Increase in Shareholder Limits in Community Banks
H.R. 4088, The Capital Expansion Act, increases the number of maximum shareholders from 500 to 2,000 for community banks or holding companies before registration of the securities is required.
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By Michael Lewis Date January 23, 2022FEATURED PROMOTION
H.R. 3606, Jumpstart Our Business Startups Act (JOBS) was passed by the House and Senate on March 27, 2012 and signed into law by President Obama on April 5, 2012. While most economists believe the Act will have little impact on increased employment, the restrictions and costs faced by private companies seeking to access public markets during their early growth years will be reduced. However, the benefits are likely to come at the expense of private investors who have lost long-established protections provided under prior securities laws. Many observers believe that the increased risks of frauds and scams to the public at large outweigh the small benefits to a limited group of companies, investment managers, and broker-dealers. According to its sponsors, JOBS “will help small companies raise capital, grow their business, and create private jobs for Americans.” Practically speaking, the intent of JOBS is to stimulate investment in new and emerging businesses and to relieve smaller publicly traded companies from what some feel are onerous reporting requirements of the Sarbanes-Oxley Act. Sarbanes-Oxley, enacted into law on July 29, 2002 following the failure of Enron, established strict standards for the accounting and reporting of financial results of public companies, and extended criminal and civil liability to boards of directors, management, and public accounting firms for failure to comply with the regulations. With the passage of the JOBS Act, many of the protections afforded investors by Sarbanes-Oxley have been effectively removed.You own shares of Apple, Amazon, Tesla. Why not Banksy or Andy Warhol? Their works’ value doesn’t rise and fall with the stock market. And they’re a lot cooler than Jeff Bezos.
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What’ s Included in the JOBS Act
Many key provisions were initially contained in previous limited bipartisan bills which were subsequently combined into the JOBS Act. The most important provisions are: 1. Creation of the “Emerging Growth Company”The Act created a new category of equity issuers, an emerging growth company (EGC), which is subject to SEC regulations over a five-year period. A company must be privately held and have less than $1 billion in revenues to have EGC status, and can retain that status for a maximum of five years or until it exceeds $1 billion in gross revenues. Under the Act, an EGC: Is exempt from the rule giving shareholders the right to a vote on executive compensation, which shareholders now have under existing regulations.Is required to provide only two years of audited financial statements for an initial public offering (IPO), rather than three years as is now required.Is not required to hire an independent auditing firm to provide an opinion on financial controls as required under Sarbanes-Oxley.Can provide analysts’ research reports to prospective investors or the public immediately before and after the public offering – this activity had been prohibited to avoid analysts being pressured to issue favorable opinions of securities which their employers have underwritten. 2. Allowance of Advertising and General Solicitations of Potential Investors
Under the previous provision of Regulation D, securities issuers were banned from using any “advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, and any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.” Originally approved by the House as H.R. 2940 The Access to Capital for Job Creators Act in November 2011, JOBS lifts this ban on general solicitation or advertising for Regulation D private placements typically used by small companies to raise capital. 3. Provision for “Crowdfunding”
The Act, previously passed by the House as H.R. 2930, The Entrepreneur Access to Capital Act, was amended in the Senate and allows companies to publicly solicit investors in two groups: Investors with an annual income or net worth of $100,000 can invest up to the greater of $2,000 or 5% of their annual income or net worth.Investors with an annual income or net worth greater than $100,000 can invest up to the greater of 10% of their annual income or net worth. An offering document must be filed with the SEC, but no registration is required. Broker-dealers sponsoring the offering must be registered with the SEC, and companies are able to raise up to $1 million annually. Purchasers are required to hold any securities bought under this provision for a minimum of one year. JOBS effectively eliminates the need for an accredited investor as defined in Rule 501 of Regulation D. To be recognized as an “accredited investor,” an individual was required to have a net worth exceeding $1 million excluding the value of his or her home, or income exceeding $200,000 in the two years previous to the offering, and reasonable expectation of the same income level in the year of the offering. 4. Relaxed Initial Public Offering (IPO) Rules Through Regulation A
H.R. 1070 The Small Company Capital Formation Act, passed by the House in 2011, reforms SEC Regulation A to allow a company to raise up to $50 million as long as there are audited financial statements with a simplified registration and offering circular approved by the SEC. Companies using this method of IPO are exempt from SEC regulations and state securities, or “blue sky” laws. A blue sky law is a state law that regulates the offering and sale of securities within state boundaries. 5. Delayed Reporting and Registration
Formerly titled as H.R. 2167, The Private Company Flexibility and Growth Act, and sometimes referred to as the “Facebook” regulation, the Act raises the 500 shareholder limit to 2,000 shareholders before registration with the SEC is required. Stock issued to employees is not included in the calculations. This provision enables a company to retain its private status as it grows, without being forced to implement a public offering prematurely. 6. Increase in Shareholder Limits in Community Banks
H.R. 4088, The Capital Expansion Act, increases the number of maximum shareholders from 500 to 2,000 for community banks or holding companies before registration of the securities is required.