As of today, Congress has approved the Jump-start Our Business Start-ups (JOBS) Act and President Obama is expected to sign it into law within the next few days. Among other things, the law is designed to help start-up companies more easily access capital. The key areas of coverage are summarized below:
Companies going public
Creates a new category of issuer called “emerging growth company,” which is a company that has total annual gross revenues of less than $1,000,000,000 (indexed for inflation every 5 years) during its most recently completed fiscal year. A company ceases to be an emerging growth company at the earlier of the following: 1) after five years; 2) at the end of the fiscal year in which it exceeds this revenue threshold; 3) if it issues more than $1,000,000,000 in non-convertible debt over a three-year window; or, 4) if it is deemed to be a "large accelerated filer." Emerging growth companies could conduct IPOs without being required to comply with certain Dodd-Frank and Sarbanes-Oxley financial disclosure and governance requirements.
- Among other things, the JOBS Act provides that emerging growth companies: 1) will not be required to present any more than two years of audited financial statements (rather than the current three) and will not be required to present financial data for any period before the earliest audited period presented in connection with its IPO; 2) will be exempt from (or at least defer) requirements for separate shareholder approval of executive compensation, including golden parachute compensation, and from certain executive compensation disclosure requirements; 3) will not be required to comply with new accounting standards earlier than any later effective date provided for private companies; 4) will not be required to obtain an audit or the certification of the company's internal controls by a registered independent public accounting firm; and, 5) will not be required to comply with any potential final rule issued by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation, unless the SEC overturns this exemption. The JOBS Act will allow any company to opt out of any of these exemptions.
Allows for confidential filing of registration statements with the SEC up to 21 days before a road show and also allows for meetings with institutional accredited investors and QIBs to “test the waters” to gauge interest in an IPO without being subject to existing pre-offering communications restrictions.
Allows investment banks to publish research related to an emerging growth company during the time of the IPO and around the expiration of related lock-up periods, even if the analyst was employed by a firm participating in the IPO.
Requires the SEC to submit studies to Congress on the impact of decimalization on IPOs and liquidity, as well as on ways to update, modify or simplify Regulation S-K.
Allows for general solicitation in Rule 506 (Reg D) and 144A offerings, as long as the purchasers are all accredited investors or QIBs.
Raises the minimum assets (to $10 million) and number of shareholders (from 500 total to 2,000 total or more than 500 non-accredited investors) above which a private company must register with the SEC. Holders of record would not include shares held by participants in employee compensation plans or crowdfunders.
Raises the amount of capital that can be raised by Regulation A offerings to $50 million (from the current $5 million). Further, those securities exempted under these provisions of the JOBS Act will also be exempted from blue sky regulation if the securities are sold on a national exchange or to “qualified purchasers.” However, the SEC is authorized to require issuers of these exempt securities to: 1) make periodic disclosures available to investors; 2) electronically file with the SEC and distribute to prospective investors an offering statement to suspend or terminate this disclosure requirement for an issuer; and, 3) establish disqualification requirements, similar to those established by regulation as a result of the Dodd-Frank Act.
Enables crowdfunding (again exempt from blue sky regulation), through intermediaries, but subject to certain filings with the SEC (including auditor reviewed financial statements). Such activities would be limited to raising no more than $1 million a year. While non-accredited investors would be allowed to purchase a stake in the company, they would be limited to 5-10 percent of their annual income, with the limit depending on the investor’s net worth.