House Passes Small Business Capital Formation Bill
By Cydney Posner
According to this article in The Wall Street Journal, the House this afternoon approved a single bill, the JOBS Act (Jumpstart Our Business Startups Act), by a vote of 390-23, which combined six pieces of legislation introduced individually last year, four of which have already cleared the full House by wide margins. The WSJ reports that Senate Majority Leader Harry Reid hopes to soon advance a similar bill in the Senate. According to the WSJ, a Senate floor vote could come by the end of the month, bypassing the committee process, with the differences between the House and Senate bills to be worked out in conference. See also this article from The Washington Post Apparently, everyone is taking credit for this bill.
The following are the bills that were combined into the single bill passed today:
H.R.3606 REOPENING AMERICAN CAPITAL MARKETS TO EMERGING GROWTH COMPANIES ACT
This bill phases in, over a five-year period after an IPO, certain SEC regulations, such as the requirements for say-on-pay votes, auditor attestations for internal control and even some potential future PCAOB actions. The bill creates a new category of issuer, an "Emerging Growth Company" (EGC), which would retain its status for five years or until it exceeded $1billion in annual gross revenues or became a large accelerated filer. EGCs would still need to provide audited financials (but only two years needed for an IPO and no selected financials required prior to the auditeds) and establish and maintain internal control over financial reporting.
H.R. 2940 THE ACCESS TO CAPITAL FOR JOB CREATORS ACT
This bill eliminates the ban on general solicitation in Section 4(2). Assuming the bill is the same as the previous bill adopted, it would also require the SEC to amend Reg D to remove the prohibition against general solicitation or general advertising for private offerings under Rule 506 if all purchasers of the securities are accredited investors. The rules must also require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using methods as determined by the SEC. (See my articles of 9/15/11 and 11/7/11.)
H.R. 2930 THE ENTREPRENEURS ACCESS TO CAPITAL ACT
This bill creates exemptions for "crowd funding." This bill amends Section 4 of the Securities Act to exempt transactions involving the issuance of securities in an aggregate annual amount of $1 million or less or, if audited financials are provided, $2 million or less. Individual contributions are limited to $10,000 or 10% of the investor's annual income, whichever is less. As originally passed, the bill also required that either an intermediary or, if there is no intermediary, the issuer, warn investors of the speculative nature, risks and restrictions applicable to the securities and take reasonable measures to reduce the risk of fraud, provide specified information to the SEC, question investors on their investing competence, perform a background check on the issuer's principals (intermediaries only), make available on its website a means for investor to communicate with the issuer or, for intermediaries, for investors to communicate with each other, withhold capital until a threshold amount is raised, outsource cash management functions, maintain proper books and records and refrain from offering investment advice. Notices provided to the SEC would be sent to state regulators. There would be a one-year holding period. The SEC would be required to issue rules on disqualification provisions. Holders purchasing securities under this exemption would not be considered "holders" for purposes of the 500-shareholder threshold to register under the Exchange Act and these securities would be treated as "covered securities " under NSMIA (preempting state law). (See my articles of 9/14/11 and 11/7/11.)
H.R. 1070 THE SMALL COMPANY CAPITAL FORMATION ACT
This bill amends Section 3(b) of the Securities Act to require the SEC to raise the Reg A threshold from $5 million to $50 million. The securities may be offered and sold publicly and would not be "restricted securities," Section 12(a)(2) would not apply. The issuer could solicit interest in the offering prior to filing any offering statement and must file audited financial statements annually. The SEC could adopt additional measures to protect investors, such as requiring that an offering statement be filed, mandating periodic disclosure filings and imposing disqualification requirements. The offering amount limitation could be adjusted every two years. These securities would also be treated as "covered securities " under NSMIA. The bill would require the Comptroller General to study the impact of state blue sky laws on Reg A offerings. (See my articles of 9/14/11 and 11/7/11.)
H.R. 2167 THE PRIVATE COMPANY FLEXIBILITY AND GROWTH ACT
This bill increases the holders-of-record threshold for registration under the Exchange Act from 500 to 1,000 persons (excluding from the count securities held by persons who received the securities pursuant to an employee compensation plan in exempt transactions. (See my articles of 6/14/11 and 11/7/11.)
H.R. 4088 THE CAPITAL EXPANSION ACT
This bill increases from 500 to 2,000 the cap on the number of investors permitted to invest in a community bank.