The JOBS Act, also known as the Jumpstart Our Business Startups Act, is a piece of legislation that was signed into law in the United States on April 5, 2012. The act was designed to encourage the funding and growth of small businesses by easing various securities regulations. It aimed to facilitate capital formation, create job opportunities, and stimulate economic growth.
The JOBS Act introduced several changes to the existing securities laws in the United States. Here are some of its key provisions:
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Crowdfunding: Title III of the JOBS Act created a framework for crowdfunding, allowing small businesses to raise capital from a large number of individual investors. It relaxed the restrictions on soliciting investments and enabled companies to raise funds through online platforms. However, it also imposed certain limitations on the amount individuals can invest based on their income and net worth.
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Regulation A+: Title IV of the JOBS Act expanded Regulation A, an exemption from the registration requirements for small public offerings. It increased the maximum amount that can be raised through Regulation A offerings and allowed companies to use “testing the waters” communications to gauge investor interest before filing with the Securities and Exchange Commission (SEC).
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Initial Public Offerings (IPOs): Title I of the JOBS Act created an “emerging growth company” (EGC) category, which provides certain regulatory relief for companies going public. EGCs have reduced financial reporting requirements and exemptions from certain corporate governance rules. This provision aimed to make it easier and less costly for smaller companies to access public capital markets.
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General Solicitation and Accredited Investors: Title II of the JOBS Act lifted the ban on general solicitation and advertising for certain private securities offerings. It allowed companies to publicly advertise and solicit investments in offerings limited to accredited investors. This provision aimed to increase access to capital for startups and small businesses.
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Regulation Crowdfunding: Title III of the JOBS Act introduced Regulation Crowdfunding, which established rules for crowdfunding offerings conducted through online platforms. It outlined disclosure requirements for issuers, investment limits for individual investors, and the responsibilities of crowdfunding intermediaries.
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Confidential Submissions: The JOBS Act also allowed emerging growth companies to submit draft registration statements to the SEC on a confidential basis before going public. This provision aimed to facilitate the IPO process by allowing companies to resolve regulatory concerns before making their plans public.
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Emerging Growth Companies (EGCs): The JOBS Act defined an “emerging growth company” (EGC) as a company with total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year. EGCs are eligible for certain regulatory benefits, such as reduced financial reporting requirements and exemptions from certain corporate governance rules. These benefits are aimed at facilitating the IPO process for smaller companies.
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Regulation D Rule 506: The JOBS Act modified Rule 506 of Regulation D, which provides a safe harbor for private offerings exempt from registration requirements. The act created two distinct exemptions under Rule 506: Rule 506(b) and Rule 506(c). Rule 506(b) allows private offerings to a limited number of accredited investors without general solicitation, while Rule 506(c) permits general solicitation but restricts offerings to accredited investors only.
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IPO On-Ramp: The JOBS Act established a “IPO on-ramp” for EGCs, providing them with a phased approach to compliance with certain financial reporting and disclosure requirements. This approach allows EGCs to gradually meet the full reporting requirements over time, reducing the initial burden of going public and providing flexibility for emerging companies.
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Investor Protection Provisions: While the JOBS Act aimed to ease certain regulatory requirements, it also included investor protection provisions. For instance, crowdfunding intermediaries must register with the SEC and become a member of a registered national securities association. The act also mandated specific disclosures to be provided to investors, including information about the issuer, risks, financial statements, and the offering terms.
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Regulation Crowdfunding Limitations: The JOBS Act introduced limitations on crowdfunding investments to protect individual investors. The maximum amount an investor can invest in crowdfunding offerings during a 12-month period is based on their income and net worth. These limits help prevent individuals from investing more than they can afford to lose in high-risk investments.
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Increased Access to Capital: The JOBS Act aimed to increase access to capital for small businesses and startups. By relaxing securities regulations and providing new avenues for fundraising, such as crowdfunding and Regulation A+ offerings, the act sought to reduce the barriers faced by entrepreneurs in raising funds and stimulate economic growth.
The JOBS Act brought significant changes to the regulatory landscape for small businesses and startups in the United States. It aimed to promote capital formation, ease fundraising for emerging companies, and encourage job creation. However, it’s important to note that while the act provided certain regulatory relief, it also introduced new rules and requirements to protect investors and maintain market integrity.