How the JOBS Act affects your business
“For startups and small businesses, this bill is a potential game changer.” That’s how President Obama has described the Jumpstart Our Business Startups, or JOBS Act, which he signed last Thursday. The bill removes restrictions that have historically prevented small businesses and emerging growth companies from raising capital and going public. Its goal is to increase job creation and economic growth by enabling emerging growth companies with greater access to public capital markets.
JD Supra, the online repository of free legal information, sums up how the bill will affect your business in “How Will the JOBS Act Help Smaller Businesses? Here are 5 Ways.” Here’s a rundown of the key provisions you want to know about:
- Crowdfunding: The JOBS Act allows businesses to receive up to $1 million in funding from investors without registering with the SEC. “Investors with a net worth of less than $100,000 may now invest 5 percent of their yearly income or $2,000, whichever is higher. People with more money will be allowed to invest more — up to 10% of their income.”
- Advertising: The JOBS Act removes the SEC ban that prevents small business from advertising to solicit investors.
- IPO On-Ramp: The Act eases the pathway to an IPO for small, emerging companies. It creates a new category of issuer for SEC regulations and reporting. Emerging growth companies will transition to the full rigors of SEC compliance.
- Reduced reporting requirements: The Act reduces the public company reporting requirements for emerging growth companies.
- Higher threshold for public reporting: Previously, any company with more than $10 million in assets was required to register as a public company with the SEC if any class of its equity securities was held by 500 or more persons. The JOBS Act raises this threshold to 2,000 shareholders, so long as no more than 499 shareholders are non-accredited investors.
The debate over the Act is already starting in the blogosphere. You’ll find ample articles for and against it. As an example, CNET’s Rafe Needleman takes up the pros and cons in “JOBS Act: 5 things to look forward to (and 5 to dread)“. In either case the JOBS Act increases flexibility for smaller companies to raise capital, which we all hope leads to more innovation and new business creation.