Friday, March 9, 2012

Latest Update on Crowdfunding: House Passes JOBS Act

Unless entreVIEW is your only source of entrepreneurial information (if it is, you may need some remedial assistance in this area), you may have read that the House yesterday passed the Jumpstart Our Business Startups (JOBS) Act. The bill (H.R. 3606 ) is an omnibus rollup of several previous pieces of legislation, none of which had as catchy an acronym (e.g. the “Reopening American Capital Markets to Emerging Growth Companies Act of 2011”), designed to facilitate access to capital for “emerging businesses.”
The JOBS Act includes several provisions previously passed by the House (several of which were detailed in my prior post ) along with a few others. Some of the items not detailed in my prior post include:
·       The relaxation of certain reporting obligations for newly public companies that have less than $1 billion in annual revenues. These are called “emerging growth companies,” which seems like a bit of a misnomer to me for such a high threshold, but beggars can’t be choosers.

·       An increase in the threshold for the number of shareholders which requires an issuer to become a reporting company. The existing law requires reporting if a company has $10 million in assets and 500 shareholders. The bill would require reporting only if there are either 500 “non-accredited” shareholders or 2,000 shareholders (in each case excluding both (a) employee shareholders who received their shares under an exempt plan and (b) shareholders who purchased their shares in an offering exempt under the new crowdfunding exemption).
Of course, notwithstanding stated “strong bipartisan support,” the Senate still needs to take up the measure and pass it. It sounds like many of these provisions (with possible modification) are likely to make it to the President’s desk for signature, something he’s indicated he’s eager to do.
I continue to hope that the general solicitation prohibition in Rule 506, which is in the JOBS Act, makes it into the final law because (as I indicated in my prior post) I can see how that could have a direct and immediate impact on the ability of clients to raise seed capital. Stay tuned.

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