JOBS Act

The Jumpstart Our Business Startups Act or JOBS Act, is a law intended to encourage funding of United States small businesses by easing various securities regulations. It passed with bipartisan support, and was signed into law by President Barack Obama on April 5, 2012. The term "The JOBS Act" is also sometimes used informally to refer to just Titles II and III of the legislation which are the two most important pieces to much of the crowdfunding and startup community. Title II went into effect on September 23, 2013. Title III is still pending.

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.

The primary provisions of the House bill as amended would:

(1) 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. These requirements are now generally triggered when a company’s assets reach $10 million and it has 500 shareholders of record. 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.

(2) 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 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 limits are $2,000 or 5% (whichever is greater) for people earning (or worth) up to $100,000, and $100,000 or 10% (whichever is less) for people earning (or worth) $100,000 or more. This exemption is intended to allow a form of crowd funding. While there are already many types of exemptions, most exempt offerings, especially those conducted using the internet, 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).

(3) Define "emerging growth companies" as those with less than $1 billion total annual gross revenues in their most recent fiscal year.

(4) Relieve 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. New public companies now have a two-year phase-in, so this bill would extend that by an additional three years. Smaller public companies are also already entitled to special relief from these requirements, and the bill does not change that.

(5) Lift the ban on “general solicitation” and advertising in specific kinds of private placements of securities. This allows broader marketing of placements, as long as companies only sell to accredited investors (based on income, net worth or written confirmation from a specified third party).

(6) 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.

(7) Raise the number of permitted shareholders in community banks from 500 to 2,000.

(8) The bill prohibits the crowdfunding of investment funds.

The first six sections, or "Titles," of the JOBS Act are named after the original bills that each was based on, and the last section, Title VII, tells the SEC to conduct outreach regarding the new legislation to SMEs and businesses owned by women, veterans, and minorities. Title III of the Act, the crowdfunding provision, has been called one of the most momentous securities exemptions enacted since the original Securities Act of 1933.


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