United States: The Gist Of The JOBS Act

Last Updated: April 16 2012
Article by Christopher G. Karras and Anna Krishtul

The Jumpstart Our Business Startups Act, or JOBS Act, has been overwhelmingly passed by the House and Senate, and President Obama has said he will sign it. Here is a summary of the changes the act will effect.

Reopening American Capital Markets to Emerging Growth Companies Act

Title I of the JOBS Act, which becomes operative as soon as the legislation is signed into law, creates a new category of issuer under federal securities laws: an emerging growth company. The Title is designed otherwise imposed on companies conducting an initial public offering.

An emerging growth company is defined as a company that had total annual gross revenues of less than $1 billion during its most recently completed fiscal year a standard that would have been met by a majority of companies conducting an IPO in the last several years. An issuer that is an emerging growth company on the first day of that fiscal year continues to be an emerging growth company until the earliest of:

  • the last day of the fiscal year in which gross revenues exceeded $1 billion;
  • the fifth anniversary of the effective date of the company's registration statement;
  • the date on which the company has, during the previous three-year period, issued nonconvertible debt securities exceeding $1 billion in the aggregate; or
  • the date on which the company qualifies as a large accelerated filer (which currently includes seasoned issuers with a worldwide public float of $700 million or more).

The Title exempts emerging growth companies from a number of requirements otherwise imposed in connection with an IPO:

  • Emerging growth companies may go public with only two years of audited financial statements rather than three.
  • Emerging growth companies may have the SEC review their registration statements for IPOs on a confidential, nonpublic basis, although the registration statement must be publicly filed at least 21 days before the roadshow.
  • The communications restrictions in connection with an IPO are eased to allow any person authorized to act on behalf of an emerging growth company to engage in oral or written communications with qualified institutional buyers or institutional accredited investors to "test the waters" for the IPO.
  • The Title removes the ban on the distribution of research reports by brokers or dealers in connection with the emerging growth company's IPO. The legislation also removes restrictions on who may arrange for communications between securities analysts and investors, and permits securities analysts to participate in communications with an emerging growth company's management along with other representatives of a broker or dealer.

The act also exempts emerging growth companies from a number of requirements otherwise imposed on public companies: mandatory audit firm rotation will not apply; less disclosure of executive compensation will be required; auditors will not need to attest to the company's internal controls under the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act); companies need not comply with public company accounting standards until they are generally applicable to companies that are not "issuers" under the Sarbanes-Oxley Act; and a stockholder vote on executive compensation (say-on-pay) will not be required until one to three years after it is no longer an emerging growth company.

Access to Capital for Job Creators Act

Title II of the JOBS Act removes the ban on soliciting investors through advertising, allowing "general solicitation" and "general advertising" in private issuances under Rule 506 of Regulation D, provided that all purchasers are accredited investors, or exclusively to qualified institutional investors under Rule 144A financings. The SEC must implement these provisions by rules within 90 days of the act's enactment.

Crowdfunding Act

Title III of the JOBS Act authorizes "crowdfunding," allowing businesses to raise equity capital from both accredited and non-accredited investors without registration with the SEC. The Title is intended to allow entrepreneurs to solicit small investments directly from the general public through a "crowdfunding intermediary," a broker or a funding portal registered with the SEC and any applicable self-regulatory organization.

A private company may issue up to $1 million of restricted securities in any 12-month period in reliance upon the crowdfunding exemption. Investors having an annual income under $100,000 may only invest up to the greater of $2,000 or 5 percent of their income. Investors with an annual income over $100,000 may invest up to 10 percent of their annual income in any offering, up to a maximum of $100,000. These investor limits apply in the aggregate to all investments made, regardless of issuer.

Securities purchased through crowdfunding may not be sold for one year from the date of purchase, other than to the issuer, accredited investors, as part of a registered public offering or to a family member. A person who purchases securities under this exemption may bring an action against the issuer, directors and executives for a full refund or damages based on any material misstatements or omissions. Securities issued under the crowdfunding exemption are exempt from state blue-sky laws. The SEC must adopt rules to implement the crowdfunding exemption within 270 days.

Small Company Capital Formation Act

Title IV of the JOBS Act requires the SEC to increase the current $5 million limit on Regulation A exempt securities offerings to $50 million in any 12-month period. As is currently the case, these exempt securities may be resold freely without registration or a transaction exemption. Unlike crowdfunding provisions discussed above, these offerings will be subject to state securities laws unless they are listed on a national securities exchange or sold only to qualified investors.

The Title provides that issuers of exempt securities must file with the SEC an offering statement and audited financial statements. Annually thereafter the issuer must file such disclosures as the SEC may require, including audited financial statements. The Title also directs the SEC to prescribe terms and conditions of such offerings and under which the issuer may solicit investor interest prior to filing any offering statement. This Title will require implementing SEC rulemaking before it becomes operative.

Private Company Flexibility and Growth Act

Title V of the JOBS Act increases from 500 to 2,000 the number of stockholders of record that a company may have before it must register with the SEC (and become subject to reporting and other requirements under the Securities Exchange Act), so long as the company has no more than 499 stockholders who are not accredited investors.

Under current law, a company is required to register once it has at least 500 stockholders of record and $10 million in assets. The new limit excludes stockholders who obtained stock under an employee compensation plan and securities issued in a crowdfunding will be exempt. These provisions will become operative as soon as the legislation is signed into law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Christopher G. Karras
 
In association with
Related Video
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.