Monday, September 12, 2011

Rep. Schweikert Says Now in the Time to Enact Legislation Enhancing Capital Formation

Now is the window of time to move capital formation, job-creating legislation through Congress, Rep. David Schweikert (R-AZ) told the Private Company Stock Conference in NYC. Support is growing for House legislation designed to encourage small companies to access the capital markets by increasing the offering threshold for companies exempted from SEC registration under Regulation A from $5 million to $50 million. The SEC has the authority to raise this threshold but has not done so for almost two decades. The Small Company Capital Formation Act, sponsored by Rep. David Schweikert (R-AZ), would also require the SEC to re-examine the threshold every two years and report to Congress on decisions regarding the adjustment to the threshold. Rep. Schweikert is also sponsoring legislation, HR 2167, that would raise the SEC 500-shareholder to 1000 and exempt accredited investors and employeees.

Financial Services Committee Chairman Spencer Bachus (R-ALA) has said that amending Regulation A to make it a viable channel for small business to access capital will result in economic growth and more jobs. Small business creates most of the new jobs in the country, he added, and also new and better products that are so necessary to keep a mature economy vibrant and competitive. Rep. Schweikert emphasized that taking a small company public is an important, but expensive process that requires millions in underwriting costs. Raising the Regulation A threshold to $50 million is one way to lower those costs and promote economic growth and job creation. He said that they are trying to find someone to sponsor a companion bill in the Senate, and mentioned Senators Pat Toomey (R-PA) and John Tester (D-Mont) as possible sponsors.

In recent testimony before the Committee, Grant Thornton applauded the Small Company Capital Formation Act as the beginning of a campaign to bring back the small IPO market. The bill does three things that are enormously beneficial for small companies, said GT. First, it will drive down costs for issuers by permitting the use of a simpler Offering Circular for the SEC’s review. Second, it opens up the Regulation A exemption to a size that will allow companies to list on the NYSE and NASDAQ and to avail themselves of the so-called Blue Sky exemption, thus avoiding very costly state-by-state filings. The current Reg A limit of $5 million is below NYSE and NASDAQ listing minimums. Third, the legislation will allow issuers to gauge the viability of an offering by meeting with investors before incurring the significant costs of an offering.

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