Jenner & Block

Client Alert: Reversing Regulatory Course-JOBS Act Will Ease Capital Formation and Reduce Regulations on New and Private Companies

On March 27, 2012, the U.S. House of Representatives approved the U.S. Senate version of the Jumpstart Our Business Startups Act or “JOBS Act”.  The JOBS Act is expected to be signed by the president in the near future and  become law.  Whether the JOBS Act stimulates job creation will continue to be a hotly debated issue, but there is little doubt that the JOBS Act makes fundamental changes to the way capital will be raised by a large number of public and private companies.  It creates a new paradigm for capital formation for all but the largest companies; one where companies with up to $1 billion in annual revenues will face fewer regulatory requirements when going public, where private offerings can be broadly advertised, and where companies can use the internet and social media to raise up to $1 million every 12 months.

Most significantly, the JOBS Act:

  • Creates a new class of company termed an “Emerging Growth Company” with an easier “on ramp” to going public by reducing existing regulatory requirements;
  • Relaxes the advertising and solicitation requirements for private offerings of securities;
  • Permits “crowdfunding” – the raising of capital from a number of investors via the internet and other social media;
  • Increases from $5 million to $50 million the amount of capital that can be raised in a public offering without triggering registration and periodic reporting obligations; and
  • Raises the maximum number of shareholders permitted for private companies from 500 to 2,000 (as long as no more than 500 are not accredited).

This alert highlights the most significant reforms of the JOBS Act and how these reforms will transform the way in which capital is raised.