As of March 28, 2012, both the U.S. Senate and House of
Representatives have passed the Jumpstart Our Business Startups Act
(JOBS Act) and the bill now only awaits President Obama's
signature before it is enacted into federal law. The JOBS Act is a
combination of six separate bills and, if enacted, will have a
significant impact on the offering and private placement provisions
of the Securities Act of 1933 (Securities Act) and Securities
Exchange Act of 1934 (Exchange Act).
The JOBS Act, as conveyed by Congress, is designed to stimulate
the American economy and restore opportunities for America's
primary job creators: small businesses, startups and entrepreneurs.
If enacted, the JOBS Act would modify current securities laws with
regard to private offerings in two significant ways: It would
remove the prohibition on general solicitation and advertisement by
issuers relying on Rule 506 of Regulation D under the Securities
Act; it would also increase the investor thresholds provided by
Section 12(g) of the Exchange Act that trigger public company
reporting requirements. These provisions will fundamentally change
the way private funds are offered and sold.
Regulation D Private Placements – Removal of
Prohibition Against General Solicitation and Advertisement
The JOBS Act would require the Securities and Exchange
Commission (SEC), within 90 days of its enactment, to revise Rule
506 of Regulation D under the Securities Act to provide that the
prohibition against general solicitation or general advertising
contained in Rule 502(c) of Regulation D does not apply to offers
and sales of securities made pursuant to Rule 506, provided that
all purchasers of the securities are accredited investors. This is
a very significant development for sponsors of hedge funds, private
equity funds and venture capital funds as it will allow them to
raise capital in a much broader manner and eliminate the "one
on one" method that is in place today.
Increase of Threshold To Trigger Registration Under the
Exchange Act
The JOBS Act would also amend Section 12(g) of the Exchange Act
to raise the thresholds that trigger public company reporting.
Currently, Section 12(g)(1) of the Exchange Act requires that
issuers must register under the Exchange Act if they have total
assets exceeding $1 million (although Rule 12g-1 provides an
exemption for issuers with assets of less than $10 million,
effectively increasing this amount to $10 million) and 500 or more
shareholders. The JOBS Act would amend Section 12(g)(1) to raise
these thresholds to $10 million in assets and 2,000 shareholders
(500 of which may be shareholders who are not accredited
investors). The amendment would also exclude employees receiving
company securities under equity compensation plans from the Section
12(g) calculation. If enacted into law, this change would not
affect 3(c)(1) funds, but it would allow 3(c)(7) funds to accept up
to 1,999 qualified purchasers.
Conclusion
As stated above, the final hurdle for the JOBS Act to become
official law is President Obama's signature of approval. On
March 22, 2012, the day the Senate passed on the JOBS Act and sent
it to the House of Representatives for its final approval, the
White House Press Secretary issued a statement commending the
Senate for its bipartisan efforts in passing the bill and urging
the House to adopt the bill as approved by the Senate. This
statement indicates that President Obama likely will sign the bill
into law. We will keep you updated on any future developments with
regard to the JOBS Act.
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.
Specific Questions relating to this article should be addressed directly to the author.
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