House leaders have bundled together the crowdfunding, on ramp, Regulation D, Regulation A, raising 500-shareholder threshold pieces legislation to create an omnibus Jumpstart Our Business Startups (JOBS) Act that they could bring to the House floor as early as next week. All of the constituent measures composing the JOBS Act have either passed out of committee or passed the House with broad bi-partisan support. Meanwhile, Senate Majority Leader Harry Reid (D-NV) said that the Senate will move forward with its own package of legislation to create jobs and streamline how companies sell stock through IPOs.
A central component of the JOBS Act is the Reopening American Capital Markets to Emerging Growth Companies Act, HR 3606, approved by the House Financial Services Committee by a 54-1 vote. HR 3606 would reduce the costs of going public by providing companies with a temporary reprieve from SEC regulations by phasing in certain regulations over a five-year period. This would allow smaller companies to go public sooner, which directly leads to more job creation within the company. HR 3606 would create a new category of issuers called emerging growth companies, which would retain its status for five years or until it exceeds $1 billion in annual gross revenue or becomes a large accelerated filer.
H.R. 3606 ensures that investors are protected by requiring the emerging growth companies to provide audited financial statements as well as establishing and maintaining internal controls Over financial reporting. The measure also amends Section 404(b) of Sarbanes-Oxley to delay hiring an additional outside auditor to verify the company's internal controls for the five year on ramp period. In addition, the bill would only require emerging growth companies to provide audited financial statements for the two years prior to registration rather than three years, saving the companies millions.
Emerging growth companies would also be exempt from the requirement to hold a shareholder vote at least once every three years on executive compensation packages and golden parachutes. They are also exempt from the requirement to disclose the relationship between executive compensation and financial performance and the ratio of the CEO compensation to the median total compensation of all employees.
Another key component of the JOBS Act is H.R.2940, the Access to Capital for Jobs Creators Act, which would allow small companies offering securities under Regulation D to utilize advertisements or solicitations to reach investors and obtain capital. The SEC’s ban on solicitation, first adopted in 1982, limits the pool of potential investors and hampers the ability of small companies to raise capital, said the House leaders. HR 2940 passed the House by a vote of 413 to 11 last November.
H.R. 2930, the Entrepreneur Access to Capital Act, HR 2930, would remove SEC restrictions Preventing crowdfunding so that entrepreneurs can raise equity capital from a large pool of small investors who may or may not be considered accredited investors by the SEC. H.R 2930 allows companies to pool up to $1 million from investors without registering with the SEC, or up to $2 million if the company provides investors with audited financial statements. Individual contributions are limited to $10,000 or 10 percent of the investor’s annual income,whichever is less. HR 2930 passed the House by a bipartisan vote of 407‐17 last November.
Another piece of the JOBS Act is H.R.1070, the Small Company Capital Formation Act, which would make it easier for small businesses to go public by increasing the offering threshold for companies exempted from SEC registration from $5 million to $50 million. The SEC has the authority to raise this threshold but has not done so for almost two decades. H.R. 1070 passed the House by a bipartisan vote of 421-1 last November. The Act amends Regulation A to make it a viable channel for small companies to access capital and will permit Greater investment in these companies.
Another bill approved by voice vote in the Financial Services Committee has been added to the JOBS Act. The Private Company Flexibility and Growth Act, HR 2167, removes barriers to capital Formation for small companies by raising the shareholder registration requirement threshold from 500 to 1,000 shareholders. Many small businesses are forced to file as a public company because of an SEC regulation requiring companies with 499 shareholders and $10 million in assets to file with the SEC. This current shareholder threshold rule was originally adopted in 1964 and has not been modernized since that time. In the view of the House leaders, this regulation causes undue pressure on the markets because it restricts the number of shareholders and assets these companies can have, which in turn limits the growth stages for companies that need time and flexibility to develop.
HR 4088, The Capital Expansion Act, the House version of S. 1941, would increase the number of shareholders permitted to invest in a community bank from 500 to 2,000.
The measure would enable banks to better deploy their capital to make loans and create jobs.