The JOBS Act implements significant changes to the Securities Act of 1933, as amended (the Securities Act) and the Securities Exchange Act of 1934, as amended (the Exchange Act). The JOBS Act, among other things:
Creates a new class of issuer called the emerging growth company (EGC)
An EGC is a company with less than $1 billion in gross revenue during its most recently completed fiscal year, other than a company that first sold common equity securities in a transaction registered with the Securities and Exchange Commission on or before December 8, 2011.
A company will be considered an EGC until the earlier of five years, when annual gross revenues exceed $1 billion, or certain other specified events occur.
EGCs will be subject to reduced public company disclosure obligations including, reduced financial disclosure requirements, delayed adoption of new or revised financial accounting standards, an exemption from attestation requirements for auditors under the Sarbanes-Oxley Act of 2002, the ability to provide reduced executive compensation disclosure, and exemptions from certain executive compensation requirements created by the Dodd-Frank Act.
EGCs are permitted to engage in general solicitation of qualified institutional buyers or institutions that are accredited investors to determine whether such investors might have an interest in a contemplated securities offering.
Eliminates certain existing prohibitions on general solicitation in private offerings
Any company is permitted to communicate with and notify accredited investors under Rule 506 offerings and qualified institutional buyers under Rule 144A offerings through online and offline forums.
Offerings made under Rule 506 through general solicitation and advertising would not be deemed public offerings if otherwise compliant with Rule 506.
SEC rulemaking to be implemented within 90 days of enactment is required.
Creates new private placement exemptions permitting “crowdfunding”
U.S. private companies are permitted to raise up to $1 million over a 12-month period from large pools of small investments subject to individual investment limits.
Crowdfunding transactions must not be conducted by the issuer, but instead through an intermediary—either a registered broker or a “funding portal.”
Issuer is required to provide certain disclosures to investors and intermediaries and to file such disclosures with the SEC.
Increases the dollar amount of securities that may be publicly offered and sold under Section 3(b) of the Securities Act of 1933, as amended
“Small issuer exemption” from registration for offerings of up to $50 million created; however, the company will still be subject to civil liability under Section 12(a)(2) of the Securities Act for material misstatements and omissions.
A company may solicit interest in the offering prior to filing an offering statement, but will be required to file audited financial statements annually with the SEC.
Increases registration thresholds under Section 12(g) of the Exchange Act of 1934, as amended
Threshold requiring registration with the SEC is increased to either (a) 2,000 holders of record or (b) 500 persons who are not accredited investors.
Record holder count for determining whether registration is required shall not include securities held by persons who received such securities pursuant to an employee compensation plan or transactions exempt from registration requirements.
To read the full analysis of the JOBS Act, click here.
Members of Ballard Spahr’s Securities Group are available to assist clients as they prepare to address these new requirements. Please contact Practice Leaders Justin P. Klein at 215.864.8606 or firstname.lastname@example.org; Gerald J. Guarcini at 215-864-8625 email@example.com; or Mary J. Mullany at 215-864-8631 or firstname.lastname@example.org; or any member of the Securities Group with any questions.
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