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Will the JOBS Act have a chance to jumpstart our economy?

March 22, 2012

The JOBS Act could make it easier for startup companies to raise money from investors.

As we continue to fight high unemployment levels, the demand to increase the nation’s job market is at an all-time high. A rare case of compromise between Republicans and Democrats in the House may result in a new law. The JOBS Act (the Act), short for Jumpstart Our Business Startups, was passed through the House on March 8, 2012, with a vote of 390-23, and has strong support from President Obama.

The legislation would, among other things, make it easier for startup companies to raise money from investors by extending the amount of time that certain new public companies have to begin compliance with certain requirements. Some of the provisions and amendments in the House bill include:

  • Allow an increased number of shareholders a company may have before being required to register its common stock with the SEC
  • Allow small businesses to sell stock to non-accredited investors in amounts up to $10,000 or 10% of their annual income (whichever is less) (similar to crowd funding)
  • Allowing small companies to publicly advertise for investors

Supporters of this bill include many of those in the technology and entrepreneurship fields, especially startups and the National Venture Capital Association. These supporters claim that the Act will modernize regulations that were established almost a century ago. These modern provisions will allow the use of Twitter and other social media platforms. Although the bill seems to “cut the red tape for growing companies” the Act, however, faces scrutiny from both parties in the Senate as well as the SEC.

Other issues that have arisen as a result of the Act relate to the impact passage would have on rolling back some of the restrictions initially imposed by the Sarbanes-Oxley Act of 2002 (SOX). It would create a new category for public companies known as “emerging growth companies” for companies with less than $1 billion in revenue. For the first five years after going public, these companies would be exempt from some of the more onerous aspects of SOX. Many think this revenue threshold is too high, but many others expect a significant uptick in IPO activity if this were to pass. This could lead to some significant exit opportunities for venture capital and private equity investors.

It’s too early to tell what kind of changes will come as the Act makes it was through the Senate, but it seems clear that certain changes are needed to help continue to encourage investment in small business.

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