The “Jumpstart Our Business Startups Act” (JOBS Act, or the act) is now in effect. Notwithstanding objections to the act from the Securities and Exchange Commission (SEC), state securities regulators, institutional investors and investor protection groups based on concerns that the act eliminates numerous investor protections in the name of job creation and economic growth, the act passed the Senate and the House by overwhelming majorities and was signed by the President amid much fanfare today.
As previously described in Pepper’s recently published Corporate and Securities Law Alert, “If Three’s a Crowd, Thousands Are ... an Investment Round? JOBS Act Presents Significant Changes to the Federal Securities Laws,” the act removes long-standing restrictions on securities offerings by certain types of companies and to certain types of investors.
This article sets forth the effective dates of the more prominent provisions of the JOBS Act.
Emerging Growth Companies
The act creates a new category of companies, dubbed “emerging growth companies” – which captures most public companies – and reduces SEC disclosure requirements for these companies for up to five years from the date of their IPO.
Exclusion of EGCs from Say-on-Pay, Say-on-Frequency, Say-on-Golden Parachute shareholder advisory votes in proxy statements:
Exclusion of EGCs from pay-for-performance disclosures and ratio of CEO compensation to the median compensation of all other employees:
Limiting the requirement for audited financial statements in an EGC's Securities Act registration statement to two years instead of three years, and limiting "selected financial data" to the period commencing with the earliest audited period presented in its included financial statements:
Limiting the MD&A discussion in an EGC's Securities Act registration statement to the periods presented in the included financial statements:
Exclusion of EGCs from the requirement to comply with any new or revised financial accounting standards applicable to issuers but not applicable to non-issuers ("Issuer" means a company that has a class of securities registered under Section 12 of the Securities Exchange Act of 1934 or that is required to file reports under Section 15(d) of the Exchange Act, or which has filed a registration statement under the Securities Act of 1933 that has not yet gone effective and has not been withdrawn.):
Ability for EGCs to comply with "scaled" compensation disclosure requirements of Item 402 of Regulation S-K as applicable to "smaller reporting companies:"
Exclusion of EGCs from the requirement to file an auditor’s attestation report on the company’s internal financial controls for financial reporting:
Exclusion of EGCs from any Public Company Accounting Oversight Board (PCAOB) rules requiring mandatory audit firm rotation or an "auditor discussion and analysis" as a supplement to the audit report:
Exclusion of EGCs from any new rules adopted by the PCAOB:
Confidential submission of an EGC's IPO registration statement to the SEC for review instead of public filing on EDGAR:
Removal of research analyst restrictions against participating in EGC IPO investor meetings or publishing research reports before or soon after the IPO, or before the expiration of the IPO lock-up period:
General Solicitation and Advertising
The act eliminates the prohibition against general solicitation and advertising in private placements to accredited investors, which include institutions with significant assets and wealthy individuals.
Use of general solicitation and general advertising in private placements to accredited investors and in 144A resales to qualified institutional buyers:
Issuers will be permitted to raise capital through crowdfunding, which allows start-up companies to solicit small investments from many individual investors, through any medium, including the Internet.
Offerings of up to $1 million every 12 months through investments ranging from $2,000 to $100,000, depending on an investor’s net worth and annual income:
Increase in Section 3(b) Offering Exemption Limit
The act increases the maximum amount of securities that may be sold under a little-used public offering exemption, which would permit “test-the-waters” communications with prospective investors and would be exempt from state securities law registration requirements.
Increase of Regulation A public offering exemption from $5 million to $50 million:
Increase in Threshold for Registration under Exchange Act
The act eases the requirement for registration under the Securities Exchange Act of 1934 – by which a company becomes obligated to file periodic reports with the SEC – by increasing the thresholds for registration.
Increase to 2,000 or more holders of record, or 500 or more holders of record who are not "accredited investors:"
Exclusion of crowdfunding investors:
Exclusion of recipients of employee compensation plan securities in exempt offerings:
Increase to 2,000 or more holders of record in the case of a bank holding company:
Increase in Threshold for Deregistration under Exchange Act for Bank Holding Companies
The act makes it easier for bank holding companies to deregister under the Securities Exchange Act of 1934 and thereby exit the periodic reporting system.
Ability of a bank holding company to deregister if it has fewer than 2,000 holders of record, an increase from the level of 300 holders of record applicable to other companies:
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.