How the JOBS Act Benefits Smaller Businesses

On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (the “JOBS Act”), designed to assist the economic recovery by easing securities regulations to make it easier for small businesses to raise funds through the public and private capital markets.   A brief summary of the aspects of the law that pertain to smaller businesses are as follows:

  • General Solicitation and Advertising Allowed. Smaller companies that need to raise capital often rely on Rule 506 of Regulation D, a “private offering” exemption from the requirement to register securities offerings with the Securities and Exchange Commission (“SEC”) and state securities agencies. Prior to the JOBS Act, no issuer could engage in any form of general solicitation or advertising with respect to the securities being offered. The JOBS Act eliminates this ban under Rule 506, provided the issuer takes steps to ensure that all purchasers are “accredited investors.”
  • Crowdfunding. “Crowdfunding” is a capital-raising strategy in which groups of people pool their capital to support a particular goal or organization. The JOBS Act creates a new exemption to allow private companies to raise up to $1 million within any 12-month period, with each investor being allowed to invest up to a certain amount.
  • Higher Public Reporting Thresholds. Prior to the JOBS Act, any company with more than $10 million in assets was required to register as a public company with the SEC if any class of its equity securities was held by 500 or more persons. The JOBS Act raises this threshold to 2,000 shareholders, so long as no more than 499 shareholders are not “accredited investors.”.
  • Expanded Reg A Mini-Registration. Regulation A is a scaled-back form of registration (or “mini-registration”) with less disclosure and regulatory requirements than a full registered offering under federal law. Prior to the JOBS Act, private companies could raise up to $5 million under Regulation A. The JOBS Act requires the SEC to amend Regulation A (or create a new exemption similar to Regulation A) to allow private companies to raise up to $50 million within any 12-month period.

 



Author: Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.

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