SEC Lifts Ban on General Solicitation, Adopts “Bad Actor” Disqualification Rules and Proposes Amendments to Form D Filings
On April 5, 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act after it cleared Congress with strong bi-partisan support. The Act is intended to increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies. The final bill includes the Senate's changes to the "crowdfunding" provisions of the House bill. Below are some of the relevant changes.
The JOBS Act contains a number of provisions designed to ease capital raising for private companies, including:
Increasing the maximum number of shareholders of record that a private company can have before it must register with the SEC as a public company from 500 to 2,000, so long as fewer than 500 are non-accredited investors, and excluding:
Requiring the SEC to remove the prohibition on general solicitation or general advertising when conducting private placements under Rule 506 of Regulation D, thus allowing companies to advertise broadly when conducting private placements.
Permitting "crowdfunding" activities so that entrepreneurs could raise up to $1.0 million from a large pool of small investors, subject to limitations based on investor income levels. Issuers will be allowed to rely on investor certifications of income.
Raising the limit for offerings under Regulation A (the small offerings exemption) from $5 million to $50 million and exempting Regulation A offerings from state securities laws, so long as the securities are:
The revised Regulation A will require issuers to file audited financial statements annually with the SEC and the JOBS Act directs the SEC to develop rules relating to periodic disclosure by Regulation A issuers and to develop rules requiring an issuer to file and distribute to prospective investors an offering statement containing specified disclosures.
The timing relating to these provisions varies:
The JOBS Act creates a category of issuer called an "emerging growth company", which is a company that has under $1.0 billion in annual revenue.
Such a company will remain an emerging growth company until the earliest of:
Under the JOBS Act emerging growth companies:
Research reports relating to emerging growth companies and research communications with investors and management will be easier:
IPO filings with the SEC by emerging growth companies can be made confidentially.
An emerging growth company will be exempt from shareholder approval requirements of executive compensation ("say on pay").
A company may only qualify as an emerging growth company if its first sale of common equity pursuant to an effective registration statement occurred after December 8, 2011.
Several of our colleagues are preparing alerts on portions of the bill relating to their specific areas of practice. These alerts and other materials related to the JOBS Act will be posted here as they are produced.
Jumpstart Our Business Startups (JOBS) Act
The JOBS Act as Passed by Congress (PDF format, 1 Mb)