JOBS Act – Easing Regulations for Growth
Having passed the United States House of Representatives with bipartisan support on March 8 this year, the Jumpstart Our Business Startups Act – more commonly, and maybe aptly, referred to as the JOBS Act – is awaiting the signature of Barack Obama to pass it into law. The purpose of the Act is to ease various securities regulations, and thereby encourage the funding of small businesses in the United States. The President has already made known his readiness to sign the JOBS Act once it has been passed by both chambers, and analysts are reportedly studying the new legislation with a view to making use of any opportunities it may present to Wall Street investors.
Among other things, the legislation would extend the amount of time from two to five years for selected public companies to begin compliance with state requirements, including some of the requirements contained within the Sarbanes-Oxley Act. Having been amended on March 22, and being returned to the House for a second vote, the JOBS Act intends to increase the number of shareholders a company is permitted to have before being obliged to register its common stock with the Securities and Exchange Commission, thereby becoming a public company. The current requirements are generally 500 shareholders of record, with the company’s assets at US$10 million or above. The JOBS Act would increase this number to 500 unaccredited shareholders and the total number of shareholders, accredited or unaccredited, being 2,000. How helpful this new ruling will be remains to be seen, as currently it is fairly common for companies to have thousands of shareholders and not have to meet the SEC registration requirement. The reason for this is that brokers, while only being counted as one shareholder of record, may hold shares for large numbers of individual shareholders.
Other noteworthy changes the JOBS Act will bring about include lifting the current ban on what is termed as ‘general solicitation’ and permitting advertising subject to certain conditions, as well as raising the limit from $5 million to $50 million for securities offerings currently exempted under SEC Rule 505 of Regulation D.
Critics of the JOBS Act are calling it legislation written by Wall Street for Wall Street, while proponents are highlighting the benefits of relaxed regulations for emerging, or start-up, companies. Underwriting IPOs can generate big business on Wall Street. An example can be seen in Facebook, with firms like Goldman Sachs, Morgan Stanley and JP Morgan Chase poised to collect millions of dollars in fees when the popular social networking business goes public later this year. History has revealed that sometimes the viability and value of a company launching its initial purchase offering have been overstated, generating large fees, but disappointing returns for investors. Regulators will no doubt be keeping a watchful eye on compliance if the JOBS Act becomes a reality.