On April 5, 2012 President Obama signed the JOBS Act into law. In my excitement over this ground-breaking new law, I have been zealously blogging about the Crowdfunding portion of the JOBS Act. However, the JOBS Act impacts securities laws in many additional ways. The following is a summary of the many ways the JOBS Act will amend current securities regulations, all in ways to support small businesses.
A. The New “Emerging Growth Company” Category
The JOBS Act will create a new category of companies defined as “Emerging Growth Companies” (EGC). An EGC will be defined as a company with annual gross revenues of less than $1 billion, that has been public and reporting for a minimum of five years and whose non-affiliated public float is valued at less than $700 million. EGC’s will have reduced requirements associated with initial public offerings (IPO’s) and ongoing reporting requirements. For many purposes, EGC’s will be allowed to use the less stringent reporting requirements now available for small public companies, defined as those with less than $75 million in revenues.
In particular, (i) EGC’s will only need to provide two years of audited financial statements instead of the now required three years; (ii) EGC’s can report executive compensation as a small business and will not be required to obtain shareholder approval for executive officer compensation; (iii) no internal control over financial reporting audit requirements; (iv) relief from compliance with new US GAAP accounting requirements; (v) confidential treatment of IPO filing documents until just 21 days prior to commencing a road show; (vi) elimination of restrictions on publishing analyst research and communications while IPO’s are underway.
B. Amendments to Regulation A
The JOBS Act will increase the offering limit under Regulation A from $5million to $50 million and allow solicitation in association with a Regulation A offering. A Regulation A offering involves the filing of a short form registration statement with the SEC, results in freely tradeable (unrestricted securities), but does not result in public reporting requirements. That is, companies will now be able to use Regulation A to complete large private offerings, and then investors in the Regulation A offering will immediately be able to sell or transfer their interests using private company market places (PCMP’s). A new public/private trading platform if you will.
And – my favorite:
C. Crowdfunding
The following is a summary of the new crowdfunding rules:
(i) Issuers are limited to raising no more than $1 million in any 12 month period (like the current Rule 504 exemption)
(ii) Each investor is limited to the greater of $2,000 or 5% of their annual income if such income is $100,000 or less; or $100,000 or 10% of annual income for investors with an annual income in excess of $100,000
(iii) Issuers must file a report with the SEC and provide investors with the report disclosing (a) financial statements (unaudited for offerings less than $500,000 and audited for over $500,000); (b) business description; (c) intended use of proceeds; (d) offering amount and term of offering; (e) pricing and method used to determine pricing; (f) management and bios of same; and (g) current ownership/capitalization
(iv) Issuers will be required to file limited annual financial statements for a period after the offering;
(v) offerings will need to be conducted through licensed intermediaries; intermediaries do not need to licensed broker dealers but will be required to be members of an SRO such as the new Crowdfund Intermediary Regulatory Association (CFIRA)
(vi) advertising will be allowed in a limited fashion such as a tombstone ad directing investors to the licensed intermediary;
(vii) securities sold will be subject to holding periods and resale restrictions
(viii) only available to U.S. organized entities;
(ix) only available to non-reporting entities;
(x) pre-empts state law such as Rule 506 does now;
The Author
Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions
Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.
Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (“Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (“Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.
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© Legal & Compliance, LLC 2012
