Emerging businesses have more room to raise capital under the JOBS Act.

Author:Baldwin, Ben
Position:LAW JOURNAL 2013

On April 5, 2012, President Barack Obama signed into law the JOBS Act. Those unfamiliar with it may be surprised to learn that it concerns neither jobs nor employment--at least not directly. Its name--an acronym for Jump-start Our Business Startups--was a clever means of encouraging political support for the bill given that the nation's employment growth was still sluggish despite being several years into recovery from the Great Recession.

The purpose of the act was to make it easier for small businesses to raise capital, essentially by easing restrictions imposed by the federal securities laws, Sarbanes-Oxley Act of 2002 and Dodd-Frank's Wall Street reforms. Will the act affect job growth? It's too soon to tell. But it did result in significant changes in the law. This article summarizes some of the more salient ones.

Certain provisions of the act went into effect immediately. Others are subject to regulations that have yet to be promulgated. It is unclear when the various regulations will be in place. The U.S. Securities and Exchange Commission is still neck-deep in finalizing Dodd-Frank reforms and is undergoing a leadership transition. That said, Mary Jo White, the new SEC chairwoman, indicated in her confirmation hearings that full implementation of the act would be a top priority under her leadership.

Titles of the act now in effect

Title I, "Reopening American Capital Marketing to Emerging Growth Companies," established the classification of Emerging Growth Companies. Its purpose is to ease an EGC's transition from private to public company by limiting the impacts of the Securities Act of 1933, the Securities Exchange Act of 1934, Sarbanes-Oxley and Dodd-Frank.

An EGC has total annual gross revenue of less than $1 billion. The company (unless it went public before Dec. 8, 2011) will enjoy that designation until its revenue exceeds $1 billion, five years after its initial public offering, the date it issues more than $1 billion of nonconvertible debt or when it becomes a large accelerated filer, as defined under the Exchange Act.

The principal benefits of being an EGC are as follows:

* They may begin the process of going public on a confidential basis before publicly filing. Available data illustrates that 65% of the EGCs going public since the inception of the act have taken advantage of this facet of the new law.

* They may engage in oral or written communications with certain potential investors to test the waters for an initial...

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