CEO might want to look at this bill
President Obama unveiled the Startup America Initiative on January 31, 2011, which over the course of a year came to recommend different reforms aimed at increasing small businesses' ability to raise capital.[1][2] In February 2011, Jason Best, Sherwood Neiss and Zak Cassady-Dorion Principals of Crowdfund Capital Advisors banded together and formed 'Startup Exemption' with the goal to lobby Washington, D.C. to update the U.S. Federal Securities Laws and make it legal for entrepreneurs to use crowdfunding to raise a limited amount of early-stage equity-based financing. With the assistance of the Small Business and Entrepreneurship Council (SBEC) they partook in two hearings on Capitol Hill. Their framework was the basis for the Entrepreneur Access to Capital Act (H.R. 2930) introduced by Rep. Patrick McHenry (R-NC) on September 14, 2011. It proposed to greatly reduce restrictions on equity crowdfunding of for-profit businesses then present in state and federal securities laws. Various other crowdfunding pioneers such as Jessica Jackley and Dana Mauriello of ProFounder also testified in favor of a revision to federal securities laws to allow for micro-investments.[3] The resulting bill was a rare example of bipartisan cooperation, earning the strong support of House Majority Leader Eric Cantor, who shepherded the legislation through the House.[4] The legislation passed the United States House of Representatives (H.R. 3606) on March 8, 2012 in a strong, bipartisan vote.[5] The U.S. Senate began consideration of the bill on Tuesday, March 20, 2012[6] and passed an amended version on March 22, that went back to the House for another vote.[7] The amendment made by the Senate altered the crowd funding exception to require intermediaries in a crowd funding offering to be registered with the SEC.[8] President Obama expressed readiness to sign the JOBS Act when passed by both chambers.[9]
Once the JOBS Act was signed, the Congress instructed the Securities and Exchange Commission to draft the regulations that would cover such space, using the Dodd Frank as a precedent. The SEC has a deadline established on January 2013 to issue the regulations.[10]
[edit] Provisions of bill
The legislation, among many other things, extends the amount of time that certain new public companies have to begin compliance with certain requirements, including certain requirements that originated with the Sarbanes–Oxley Act, from two years to five years.[11][12]
The primary provisions of the House bill as amended would:
increase the number of shareholders a company may have before being required to register its common stock with the SEC and become a publicly reporting company. Currently, these requirements are generally triggered when a company's assets reach $10 million and it has 500 shareholders of record.[13][14] The House bill would alter this so that the threshold is reached only if the company has 500 “unaccredited" shareholders, or 2,000 total shareholders, including both accredited and unaccredited shareholders.[11][15]
provide a new exemption from the requirement to register public offerings with the SEC, for certain types of small offerings, subject to several conditions. This exemption would allow use of the internet "funding portals" registered with the government, the use of which in private placements is currently extremely limited by current law. One of the conditions of this exemption is a yearly aggregate limit on the amount each person may invest in offerings of this type, tiered by the person's net worth or yearly income. The limit ranges from 2% of people earning (or worth) up to $40,000, up to a cap of $10,000 for people earning (or worth) $100,000 or more. This exemption is intended to allow a form of crowd funding.[16] While there are already many types of exemptions, most exempt offerings, especially those conducted using the internet, currently are offered only to accredited investors, or limit the number of non-accredited investors who are allowed to participate, due to the legal restrictions place on private placements of securities. Additionally the Bill mandates reviews of financial statements for offerings between $100,000 and $500,000, and audits of financial statements for offerings greater than $500,000 (noting maximum offering of $1,000,000)[17]
relieve certain kinds of companies, which the bill calls “emerging growth companies,” from certain regulatory and disclosure requirements in the registration statement they originally file when they go public, and for a period of five years after that. The most significant relief provided is from obligations imposed by Section 404 of the Sarbanes-Oxley Act and related rules and regulations. Currently, new public companies have a two-year phase-in, so this bill would extend that by an additional three years. Also, smaller public companies are also already entitled to special relief from these requirements, and the bill does not change that.[16]
lift the current ban on “general solicitation” and advertising in specific kinds of private placements of securities.[16]
raise the limit for securities offerings exempted under Regulation A from $5 million to $50 million, thereby allowing for larger fundraising efforts under this simplified regulation.[16]
raise the number of permitted shareholders in community banks from 500 to 2,000.[16]
The bill prohibits the crowdfunding of investment funds.[18]
[edit] Reception
[edit] Support
The JOBS Act had bipartisan support in Congress.[9][19] It was supported by many in the technology and startup communities, including Google,[20] Steve Case (founder of AOL), Mitch Kapor (founder of Lotus), Jim Newton (founder of TechShop), and many other investors and entrepreneurs. It is also supported by the National Venture Capital Association, which described the bill as modernizing regulations that were put in place almost 100 years before, by among other things facilitating use of online services to make investments in small companies. The "crowdfunding" provisions, which allow companies to sell securities through open platforms, were often likened to the Kickstarter online model for funding artists and designers.[21][22]
The JOBS Act is also a welcome development for nonprofit organizations which operate crowd funding platforms for microfinance loans, such as Kiva and Zidisha. These organizations have not obtained licenses as securities brokers due to high legal compliance costs. Kiva, an organization that allows individual web users to support microloans managed by intermediaries in developing countries, complies with SEC regulations by making it impossible for lenders to earn a positive financial return.[23] Zidisha, which operates an eBay-style platform that allows individual web users to transact directly with computer-literate borrowers in developing countries, does allow lenders to earn interest, but complies with SEC regulations by not guaranteeing cash payouts.[24] RocketHub testified in Congress June 26, 2012 in support of the JOBS Act and its intent to offer equity crowdfunding.[25]
[edit] Criticism
The bill was opposed by some securities regulators and consumer and investor advocates, including the AARP, the Consumer Federation of America, the Council of Institutional Investors, and others.[26] Among the complaints were that the loosening of investment protections would expose small and inexperienced investors to fraud. The Consumer Federation of America characterized an earlier version of the legislation as "the dangerous and discredited notion that the way to create jobs is to weaken regulatory protections".[27] Criminologist William K. Black had said the bill would lead to a "regulatory race to the bottom" and said it was lobbied by Wall Street to weaken the Sarbanes–Oxley Act.[28] It is also opposed by labor unions, including the AFL-CIO,[29] the AFSCME,[26] and the National Education Association.[26]
Criticisms were levied against the House version of the bill as "gutting regulations designed to safeguard investors",[30] legalizing boiler room operations,[31] "reliev[ing] businesses that are preparing to go public from some of the most important auditing regulations that Congress passed after the Enron debacle",[32] and "a terrible package of bills that would undo essential investor protections, reduce market transparency and distort the efficient allocation of capital".[33]
[edit] Current status
While the JOBS Act itself was passed on April 5, 2012, the two pieces of most importance to much of the crowdfunding and startup community will not go into place until the SEC puts into effect rules that outline how the JOBS Act will go be enforced. Despite a mandate to enact rules on Title II within 90 days of April 5, 2012, the SEC did not put out proposed rules until August 29, 2012.[34] The SEC also has a mandate to enact rules under Title III of the JOBS Act within 270 days of April 5, 2012, but are very likely to miss that deadline, some say over concerns by outgoing chairman Mary Schapiro over her legacy.[35]
