Last month the Jumpstart Our Business Startups (JOBS) Act was passed by both the House and Senate and a signature is expected from President Obama today. The JOBS Act has major implications for emerging companies in the United States as it aims to simplify start-up fundraising through a number of changes, including amendments to the Securities Act of 1933. We recently received this memo from our friends at Morrison & Foerster which provides extensive detail on the significant changes brought about by the JOBS Act. Here is an excerpt:
For several months now, we have been reporting on various legislative proposals that would ease the regulatory burdens on smaller companies and facilitate capital formation. These proposals were brought together under the Jumpstart Our Business Startups (JOBS) Act (H.R. 3606). The JOBS Act was passed by the U.S. House of Representatives on March 8, 2012, and by the Senate, with an amendment related to crowdfunding, on March 22, 2012. Once the House and Senate reach agreement on a final version of the JOBS Act legislation, it is expected to be enacted by President Obama.
Business leaders and commentators have been observing for some time that the regulatory requirements to be met in order to finance companies in the United States have become overly burdensome and discourage entrepreneurship. These observations had tended to fall on deaf Congressional ears. However, in the aftermath of the financial crisis, with national attention shifting to job creation, and the backlash against over-regulation brought about by the adoption of the Dodd-Frank Act, Congress is now listening. As we discuss below, the JOBS Act includes a number of measures (summarized in our chart at the end of this alert). For example, the legislation creates a transitional “on-ramp” for emerging growth companies to encourage them to pursue IPOs by phasing in compliance measures over time following their IPOs. The legislation also includes a measure that amends the Securities Act of 1933, as amended (the “Securities Act”), to permit companies to conduct offerings to raise up to $50 million through a “mini-registration” process similar to Regulation A. Regulation A has not been used much in recent years because of the low threshold (currently $5 million) but many smaller companies would find Regulation A-type offerings a helpful capital-raising alternative. The legislation also modifies the triggers for SEC reporting obligations. Currently, Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) mandates SEC reporting (even in the absence of a company having conducted a public offering) once a company has 500 or more shareholders of record and the company has total assets in excess of $10 million. With more companies choosing to stay “private” longer and defer IPOs, this threshold, which was adopted in the 1960s, often constrains their activities. The legislation also modifies the prohibition against “general solicitation and general advertising” in connection with private placements, and provides an exemption under the Securities Act for “crowdfunding” offerings. Together, these measures hold the prospect of making a difference for emerging companies in the United States.
Morrison & Foerster have a number of resources available addressing the JOBS Act and MoFo’s Anna Pinedo will be Chairing PLI’s upcoming seminar, Private Placements and Other Financing Alternatives 2012 where our faculty will discuss these recent developments.