In short form, the JOBS Act (JumpStart Our Business Start-ups Act) is a way for start-up companies and the regular person to become micro investors. With 2014 already into play, how will recent developments effect market trends and business developments? The JOBS Act was developed in effort to boost the economy and give start-ups that extra motivation and easier access to acquire capital. New ventures now have access to a variety of means to jump start their business.
The Act was passed in Congress and signed into law by President Obama in April 2012. With those of modest means in mind the act was designed to motivate small businesses and start-up funding by easing the hurdles associated with the various federal regulations. Giving new businesses access to accept small contributions from private individuals-better known as “crowd-funding”-without making a public offer initially.
Each title within the JOBS Act has a purpose. Here is a breakdown of the provisions and what they mean:
Title I— Reopening American Capital Markets to Emerging Growth Companies
Title I (IPO On-Ramp) — created a category of company referred to as the “Emerging Growth Companies.” This is described to be a company with less than $1 billion in revenue. This type of company would benefit with more lenient regulations by the SEC than many other public companies for up to five years. This allows smaller companies to go public sooner. This in theory would lead to the faster creation of jobs.
Title II — Access to Capital for Job Creators
A couple of distinct changes were made to the law related to private placements. A provision is now in place instructing the SEC to revise and to remove the general solicitation prohibition from the rules. This is applicable to offers made under Rule 506. The second change we see is the exemption from broker and dealer registration which pertains to certain online platforms. The online platforms provision became effective upon the passing of the JOBS Act. Entrepreneurs can now solicit to the public to reach their investors.
The most well-known of all the provisions in the JOBS Act, crowd-funding creates an exemption from securities laws applied to only certain offerings made online. On October 23, 2013, the SEC proposed new ruling, which would allow non-accredited investors to participate in equity crowd-funding. Approval of new rulings are expected in May 2014.
Title IV— Small Company Capital Formation
Increases the amount of capital that can be earned. These figures changed from $5 million to $50 million. These modifications were proposed by the SEC on December 18, 2013 and are known as the “small offering exemption”. This would allow smaller companies to raise capital without SEC registration and increase capital access.
Title V— Private Company Flexibility and Growth
Title V removes the obstacles encountered to capital for small business and raises the threshold for mandatory registration from 500 shareholders on record to 2,000. Shareholders who acquired shares through crowd-funding transactions or through employee compensation plans are excluded from these calculations. Those holders who purchased their securities through crowd-funding also not included.
Title VI- Capital Expansion
This particular title is expected to stimulate economic growth by granting banks or bank holding companies to register with the SEC once it a total assets of at least $10 billion has been reached, while also having at least 2,000 investors. Previously 500 investors was the limit. This bill allows banks to prorate more capital for the creation of loans, and minimize the cost of the SEC registration.
Titles V and VI of the JOBS Act are closely related in that they both pertain to when private companies must register their securities under the Securities Exchange Act of 1934. After a start up has gone through all the rounds of financing and provided equity compensation to a large number of employees, it places itself in a position where the number of shareholders it has triggers the requirement to register its securities and begin public reporting of the material information. Ultimately making it a public company.
Recent developments in the JOBS Act sphere:
December 18, 2013 SEC: Proposed regulations intended to optimize access to funds for smaller companies. This proposal built on top of Regulation A. The updated exemption would enable companies to offer and sell up to $50 million of securities within a 12-month period.
December 4, 2013 new compliance and disclosure interpretations were released by the SEC. Questions 260-14 through 260-27 were newly added under section 260.
October 23, 2013 SEC issued proposed rules under the JOBS Act to permit companies to offer and sell securities through crowd-funding.
October 4, 2013 Acceleration of Registration statements if there is a change in SEC’s operating status.
There are some questions concerning the SEC’s implementation, which causes reason for wary anticipation. Enforcement of material changes to the securities law must be done with care. There is no doubt the JOBS Act holds provisions that can provide 2014 start-ups and entrepreneurs a connection to capital they demand to create a fruitful job market.
Some of the provisions have yet to meet approval, such as crowd-funding. As these provisions come into effect the JOBS Act’s power of authority will start to have a greater impact on new businesses seeking capital to develop and maintain jobs in the coming year. Overall, the Act will change the business market and allow more development in that sector.