In what has been called "…a moment of bipartisan cooperation…" the U.S. Congress has adopted and on April 5, 2012, the President signed H.R. 3606 the "Jumpstart Our Business Startups Act" or "JOBS Act."
The JOBS Act is a complex piece of legislation which, notwithstanding the suggestion of its title, is not a comprehensive jobs bill. It does take important steps to make it easier for businesses, particularly small and "emerging" businesses, to raise capital. The JOBS Act seems to have been able to successfully navigate the partisan minefields of Congress, probably because it focused on issues that may inhibit the growth of small and emerging companies but does not attempt to directly impact tax revenues.
Among the most important provisions are the following:
New businesses will be able to raise up to $1,000,000 in equity from investors, including unaccredited investors, in this updated offering mode. The legislation imposes certain limitations that are intended to protect investors. Among those limitations are limiting individual investments in a 12-month period to the lesser of $2,000 or 5% of the investor's annual income or net worth or the lesser of 10% of the investor's income or net worth or $100,000 if the annual income or net worth are greater than $100,000. The transaction must take place through a broker or funding portal that complies with certain new regulations (as the seller must also). Federal law preempts state regulations in this area so that funds can be solicited from across the United States.
The Act will allow for general advertising of Reg D Rule 506 and Rule 144A offerings as long as all purchasers are "accredited investors" or "qualified institutional buyers." The Act also provides exemptions from broker-dealer registration for certain on-line or other trading platforms or matching services for such offerings.
3. Reg A - Mini Public Offerings:
The Act expands the use of Regulation A offerings (which allow companies to go public with a series of offerings, but be exempted from certain SEC registration requirements) by expanding the maximum for such aggregate annual offerings from $5,000,000 to $50,000,000.
4. Private Shareholder Cap:
Companies are currently required to file reports with the SEC as if they were a public company once they grow beyond 500 shareholders or $10,000,000 in assets. The Act increases this shareholder limit to 2,000 accredited investors or 500 unaccredited investors. Those limited will not include investors who invest via crowdfunding.
5. Emerging Growth Companies:
The Act provides certain benefits for a newly described category of business: "emerging growth companies" ("EGC's"). An EGC is a company that has annual gross revenues of less than $1,000,000,000 (and had not completed an IPO before December 8, 2011). This status endures until certain financial and/or time thresholds are crossed. The benefits of such a status include the following:
The JOBS Act is complex. This is only a summary of some of its provisions and all provisions of the Act will be subject to further refinement pursuant to SEC rule making. The SEC is directed to published rules and regulations on most items in the Act within 90 days. The SEC is given 180 days to set the crowdfunding rules.