Recently, two bills were introduced in Congress that, if enacted into law, would have a substantial impact on capital raising and signifi - cantly expand the universe of public companies that could avoid compliance with Section 404 of the Sarbanes Oxley Act of 2002 (Sarbanes-Oxley Act). The fi rst, the “Access to Capital for Job Creators Act”20 would require the SEC to revise Rule 506 of the Securities Act of 1933, as amended, to eliminate the prohibition on general solicitation. The second, the “Startup Expansion and Investment Act” (Startup Act)21 would modify Section 404 of the Sarbanes-Oxley Act to allow companies with a market capitalization of less than $1 billion and that have been subject to the reporting requirements of the Exchange Act for fewer than ten years to opt out of the internal control over fi nancial reporting assessment and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
Given the manner in which the ban on general solicitation has been interpreted by the SEC,22 some relaxation of the ban in connection with Rule 506 offerings would make it easier for companies to raise capital from investors. However, many would see the elimination of the ban on general solicitation in Rule 506 offerings as tilting the balance too far in favor of capital raising to the detriment of protecting the investing public.23
The second bill, the Startup Act, addresses Section 404 of the Sarbanes-Oxley Act, one of that Act’s more onerous provisions. The purported purpose of the proposed Startup Act is to allow emerging companies easier access to capital to allow for expansion and the creation of jobs.24 However, as the Dodd-Frank Act already allowed public companies with public fl oats of less than $75 million to opt out of the auditor attestation provision of Section 404, which is probably the most burdensome and costly requirement of Section 404, it is unlikely that allowing companies with market capitalizations of less than $1 billion the option to opt out of the auditor attestation provision of Section 404 will lead to any signifi cant uptick in initial public offerings.