Jumpstart Our Business Startups Act (JOBS Act)
The Jumpstart Our Business Startups Act or JOBS Act is a law intended to encourage funding of United States small businesses by easing various securities regulations. It passed with bipartisan support, and was signed into law by President Barack Obama on April 5, 2012. The Act is designed to enhance the prospects of emerging growth companies in the U.S. (broadly defined) in attracting the necessary capital to flourish, thereby providing employment, new products, revenue and GDP growth. There are several Titles, each loosening the strictures on IPOs; private placements; crowdfunding; small (below $90,000,000) public offerings; and the shareholder threshold requiring public registration (now 2000 shareholders of record). Its goal is to promote American entrepreneurship and innovation while maintaining important protections for American investors. Some highlights of the JOBS Act:
- Allowing Small Businesses to Harness “Crowdfunding”: The Internet already has been a tool for fundraising from many thousands of donors. Subject to rulemaking by the U.S. Securities and Exchange Commission (SEC), startups and small businesses will be allowed to raise up to $1 million annually from many small-dollar investors through web-based platforms, democratizing access to capital. Because the Senate acted on a bipartisan amendment, the bill includes key investor protections the President called for, including a requirement that all crowdfunding must occur through platforms that are registered with a self-regulatory organization and regulated by the SEC. In addition, investors’ annual combined investments in crowdfunded securities will be limited based on an income and net worth test.
- Expanding “Mini Public Offerings”: Prior to this legislation, the existing “Regulation A” exemption from certain SEC requirements for small businesses seeking to raise less than $5 million in a public offering was seldom used. The JOBS Act will raise this threshold to $50 million, streamlining the process for smaller innovative companies to raise capital consistent with investor protections.
- Creating an “IPO On-Ramp”: The JOBS Act makes it easier for young, high-growth firms to go public by providing an incubator period for a new class of “Emerging Growth Companies.” During this period, qualifying companies will have time to reach compliance with certain public company disclosure and auditing requirements after their initial public offering (IPO). Any firm that goes public already has up to two years after its IPO to comply with certain Sarbanes-Oxley auditing requirements. The JOBS Act extends that period to a maximum of five years, or less if during the on-ramp period a company achieves $1 billion in gross revenue, $700 million in public float, or issues more than $1 billion in non-convertible debt in the previous three years.
Additionally, the JOBS Act changes some existing limitations on how companies can solicit private investments from “accredited investors,” tasks the SEC with ensuring that companies take reasonable steps to verify that such investors are accredited, and gives companies more flexibility to plan their access to public markets and incentivize employees.