On October 5, 2011, the House Financial Services Capital Markets and Government Sponsored Enterprises Subcommittee passed five bills to ease the regulatory burden on small businesses and emerging growth companies. The five bills approved by the Subcommittee are as follows:
- H.R. 2167, the Private Company Flexibility and Growth Act. This bill would remove an impediment to capital formation for small companies by raising the shareholder threshold for mandatory registration with the SEC from 500-750 to 1,000 shareholders and the total asset threshold from $1 million to $10 million. The shareholder threshold, originally adopted in 1964, has not been modernized since its adoption. In addition, securities held by accredited investors and persons who received the securities under an employee compensation plan in transactions exempted from the registration requirements of Section 5 of the Securities Act of 1933 would be excluded from the definition of holders of record. The threshold for Regulation A offerings would also be raised from $5 million to $50 million.
- H.R. 2940, the Access to Capital for Job Creators Act. This bill would amend the private placement exemption contained in Section 4(2) by clarifying that the exemption is available whether or not the transaction involves general solicitation or general advertising. In addition, it would direct the SEC to amend Rule 506 to provide that the ban on general solicitation or general advertising does not apply if all the purchasers are accredited investors. The Subcommittee noted that this regulatory ban has limited the ability of small businesses to raise capital since securities laws prohibit general solicitation and advertising in a private placement. • H.R. 2930, the Entrepreneur Access to Capital Act. This bill would permit "crowdfunding" to finance new businesses by allowing companies to accept and pool donations of up to $1 million (or $2 million if the issuer provides audited financial statements to investors) without registering with the SEC. H.R. 2930 would establish a new Securities Act exemption for small investments that do not exceed the lesser of $10,000 and 10% of the investor's annual income, regardless of the investor's accredited status. This bill would also exclude such crowdfunding investors from the definition of record holders and provide preemption under state law for transactions under the crowdfunding exemption. This legislation is intended to open up opportunities for small investors to make investments in small businesses.
- H.R. 1965. This bill modifies regulations concerning registration and deregistration of small bank holding companies under present securities laws. Currently, the law prohibits community banks from deregistering if they have more than 300 shareholders. This requirement results in many community banks having to buy back shares in order to meet deregistration requirements. H.R. 1965 would raise the number of shareholders of a bank wishing to deregister to 1,200.
- The Small Company Job Growth and Regulatory Relief Act of 2011. This bill expands the exemptions available to small companies from the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires public companies and their independent auditors to report on the effectiveness of a company's internal controls. Since 2007, the SEC has exempted small companies with a market capitalization of less than $75 million from the requirements of Section 404. This bill would raise the exemption to companies with a market capitalization of less than $350 million. This draft legislation was presented to the House as H.R. 3213 on October 14, 2011.
The Small Company Job Growth and Regulatory Relief Act – HR 3213