Doug's Note: The JOBS Act
Public Company Forum: Spring 2012
April 25, 2012
By now, you all know that President Obama signed the Jumpstart Our Business Startups (JOBS) Act on April 5th. A rare example of political bi-partisanship, the Act is intended to help smaller companies raise capital to fund growth and create jobs.
As our long-time friends and clients know, this Public Company Forum is generally geared toward established public companies, rather than companies seeking to go public or companies committed to remaining private. For most of our readers, the Act will have little, if any, direct impact, except in unusual circumstances.
It seemed odd, however, to publish this Spring edition only three weeks after enactment without mentioning the Act because it significantly impacts many securities laws and the capital markets in a variety of ways. Therefore, I am providing below a highly abbreviated summary of the Act’s six titles, which illustrates that the primary beneficiaries will be relatively small companies or perhaps larger companies that occasionally access the capital markets through private offerings.
Title I—Reopening American Capital Markets to Emerging Growth Companies. This so-called “IPO On-Ramp” provision exempts from many SEC disclosure and procedural requirements a new category of “emerging growth companies” in an effort to streamline the IPO and post-IPO process.
Title II—Access to Capital for Job Creators. Rule 506 of Regulation D is being revised to eliminate the ban on general solicitation and advertising in connection with private offerings, but only so long as all ultimate purchasers are accredited investors. Also, Rule 144A is being revised to allow securities to be offered under that registration exemption to other than qualified institutional buyers, including offerings by general solicitation and advertising, but only so long as the ultimate buyers are QIBs. The Rule 144A changes could conceivably facilitate debt offerings by public companies. However, for most public issuers, the institutional debt markets are sufficiently established and efficient so that any practical benefits of this change remain to be seen.
Title III—The Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012. Popularly known as the “Crowdfunding Act,” this title facilitates the purchase of stock by small investors in early-stage or small companies through securities brokers or newly created “funding portals.”
Title IV—Small Company Capital Formation. Regulation A is being revised to create a new registration exemption for the issuance of up to $50 million of securities by non-reporting issuers.
Title V—Private Company Flexibility and Growth and Title VI—Capital Expansion. These titles raise the thresholds that must be crossed before a company is required to register its securities under, or may terminate registration under, the Securities Exchange Act of 1934.
Most of the Act’s provisions remain subject to extensive SEC rulemaking before they take effect, so the final impact will not be known for a while. And if the Dodd-Frank rulemaking process to date is any indication, it could be a long while.
As always, we will keep an eye on these developments and let you know when there is more to report.
Additional Articles from the Spring 2012 Public Company Forum:
"Don't Pay Me, or Else!": Extorted or Culturally Compelled Payments to Foreign Officials
What’s New With Stock Buybacks?
Say on Pay: We Got an “A+.” Should We Still Worry?
What’s Market? Are Non-Binding Auditor Ratification Votes “Required?”
Dodd-Frank Act Progress Report: Spring 2012