The Jumpstart Our Business Startups (JOBS) Act was passed by
The U.S. Congress and signed into law by President Obama on April 5, 2012. The
JOBS Act represents the most significant change to our capital formation
regulatory framework since Securities Offering Reform in 2005. The JOBS Act will
affect private companies considering an IPO or alternative capital raising
approaches, as well as existing public companies, and, of course, the financial
intermediaries that advise companies in connection with capital raising.
The most important belt that the Jumpstart Our Business Startups Act loosens concerns the amount of capital a new company may raise through the sale of securities in a 12-month period. Previously $5 million, the securities sales cap will be raised to $50 million. That cap will now specifically apply to a broader group of small companies: those with annual gross revenues of $1 billion or less (adjusted for inflation), within a five-year interval from the sale of its first security.
A new phrase is getting used, emerging growth companies (EGCs). It's the term proposed by the National Venture Capital Association (NVCA), and is now codified into law. It refers to this specific, new group of young, low-revenue companies for whom some of the normal reporting regulations will no longer apply. The NVCA recommended the five-year period as part of what it called the "IPO on-ramp." As the proposal read, "We recommend that companies with total annual gross revenue of less than $1 billion at IPO registration and that are not recognized by the SEC as 'well-known seasoned issuers' be given up to five years from the date of their IPOs to scale up to compliance. Doing so would reduce costs for companies while still adhering to the first principle of investor protection."
Lastly, the JOBS Act
removes many of the restrictions placed upon research analysts involving their
ability to comment on issues. An investment banking firm participating in a
proposed public offering of common equity of an Emerging Growth Company may publish research relating to that issuer at any time, whether before
the filing of a registration statement, during the waiting period or after it is
declared effective, without that research being treated as an offer to sell a
security. Whether or not this new Act "jumpstarts" the economy through a lessening of business startup regulation remains to be seen.
