By Sarah Carabias-Rush
On Thursday, April 5th surrounded by both Democrat and Republican lawmakers, President Obama signed the JOBS Act into law. These pro-innovation, pr0-capital formation bills are designed to make it easier for small businesses and entrepreneurs to gain access to early stage capital.
The balance between protecting investor rights and providing access to capital will be critical to the success of this bill. President Obama called to ensure that the Securities and Exchange Commission (SEC) is properly funded in order to protect this new investor class – namely the average American citizen.
The new law will do the following:
- Reopening American Capital Markets to Emerging Growth Companies Act: Also known as the “on ramp” bill. Data shows job growth is directly linked to an IPO. This bill reduces the cost of going public by providing companies with a temporary reprieve from SEC regulations by phasing in certain regulations over a five-year period, making it easier for smaller companies to go public.
- Private Company Flexibility and Growth Act: Under SEC regulations, privately held companies are limited to 500 shareholders, or they must go public. This bill increases the cap on shareholders from 500 to 1,000 and would exclude from the cap securities held by shareholders who received their securities as part of an employee compensation plan. This is the first cap increase in nearly 50 years.
- The Small Company Capital Formation Act: This bill raises the Regulation A SEC exemption for mini-IPOs from $5M to $50M. Raising the offering threshold helps small companies gain access to capital markets without the costs and delays associated with the full-scale SEC securities registration process. This is the first time in 20 years that the cap has been raised.
- Entrepreneur Access to Capital Act: This bill legalizes crowdfunding. The SEC regulations prohibited entrepreneurs from raising equity capital from a large pool of small investors. Under this bill, companies can pool up to $1M from investors, with each individual investor limited to $10,000 or 10% of his/her annual income, whichever is less.
- Access to Capital for Job Creators Act: The SEC regulations prohibited companies from “general solicitation or advertising” to protect less sophisticated investors. This bill eliminates the ban, so long as the purchasers are “accredited investors” and sufficient steps are taken to protect the less sophisticated investors. This would allow companies greater access to new sources of capital (accredited investors only).
- Capital Expansion Act: This bill is designed to support the ability of community banks to make loans to start-ups and small businesses. The bill increases the number of permitted shareholders in community banks from 500 to 2,000, allowing these banks to better deploy their capital without the increased SEC compliance costs.
The Dallas Regional Chamber applauds this bipartisan effort and encourages businesses and investors alike to educate themselves on the new opportunities afforded them through this new law. As these laws into implementation, we encourage the SEC and others to provide the leadership necessary in striking a balance between appropriate investor protections and making it easier for start-up businesses to raise the capital necessary to grow and create new jobs.
For more information on the Dallas Regional Chamber’s innovation and entrepreneurship initiatives, visit www.dallaschamber.org/innovation or www.InnovateDFW.com. For the Chamber’s small business initiatives, visit www.dallaschamber.org/index.aspx?id=SmallBusinessInitiative. Lastly, for the more information on the Chamber’s public policy efforts, please visit www.dallaschamber.org/publicpolicy.