They got tucked into a transportation bill (Fixing America’s Surface Transportation Act or the FAST Act), but with a deft set of amendments the Reforming Access for Investments in Startup Enterprises Act of 2015 (or the RAISE Act) and other small business initiatives were signed by the President on December 4, 2015 and are now law. The new law also includes a direction to the SEC to change Form S-1 to allow forward incorporation by reference in filings by smaller reporting companies. This is a big and positive change for companies not eligible to use short form registration on Form S-3.
The RAISE Act assures an exemption from SEC registration for a resale of a security to an accredited investor who has access to certain information from the company, no bad actors or shells allowed, no general solicitation or advertising, no start-up companies and the class of stock being sold has to have existed for at least 90 days. This eliminates the old awkward invented Securities Act Section 4(1-1/2) exemption which was used in practice and accepted by the SEC but actually nowhere in the statute. This could help add comfort to secondary market folks who help people buy pre-IPO stocks like Facebook and Twitter before they go public. It could also help PIPE (private investment in public equity) investors who wish to transfer their shares more confidently in a private transaction before they would otherwise be eligible to sell the shares publicly.
Other very exciting changes in the law:
- mandating the SEC look to ease disclosure burdens on smaller companies, to study ways to improve and simplify disclosure rules, and reduced disclosure for emerging growth companies.
- lengthening the time you can keep your IPO filing confidential under the JOBS Act to 15 days before the first road show (from 21 days)
- permitting a JOBS Act IPO filing to exclude financials that are likely to go stale by the time of the actual offering.
- allowing an emerging growth company to still be treated like one through its JOBS Act IPO even if it stops being an EGC during the process.
Thanks House Financial Services Committee for pushing these through the “I’m Just a Bill” process!