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SEC Issues Guidance on Title 1 of the JOBS Act

On April 5, 2012 President Obama signed the JOBS Act into law.  Some of the rules went into effect immediately; others are busily in the drafting process.   The SEC has begun issuing guidance and it is expected will continue to do so often.

On April 16, 2012, the SEC issued guidance on Title 1 of the JOBS Act.  The full text of this guidance is available on the SEC website.  Title 1 of the JOBS Act provides scaled- down business disclosure for Emerging Growth Companies (EGC’s) effectively treating them as small business issuers.  In particular, EGC’s need only provide two years of audited financials (instead of 3) for a registration of an IPO; are treated as small businesses for the reporting of executive compensation; have no Sarbanes-Oxley Act 404(b) auditor attestation requirements and are able to test the waters with communications to QIB’s and institutional accredited investors prior to an offering.


Determining When and If a Company Qualifies As An EGC

An EGC is defined in both the Securities Act of 1933 and Exchange Act of 1934 as an issuer with “total annual gross revenues” of less than $1 billion during its most recently completed fiscal year.  Total revenues are as posted on the Company’s income statement prepared in accordance with US GAAP.  The EGC definition, and therefore benefit of the reduced reporting rules, only applies to Companies that complete its “first sale of equity securities” after December 8, 2011.

Currently the SEC is making the determination of whether a Company qualifies as an EGC at the time it makes a submittal asking for such qualification.  Accordingly, if a Company filed a registration statement today, asking to be treated as an EGC and asking to be allowed to use the scaled down disclosure requirements and avail itself of confidentiality during the review process, the SEC would confirm that it qualified as of today.   If during the review process, the Company no longer qualifies as an EGC, it would be required to publicly file a new registration statement meeting the full disclosure requirements.


EGC Status Going Forward

On, the other hand, if a Company filed a registration statement prior to April 5, 2012, it would be allowed to amend to provide the scaled down disclosure.  Moreover, if an EGC completed its IPO after December 8, 2011 but prior to April 5, 2012, it may used the scaled down disclosure in its periodic reports (Q’s and K’s) going forward, as long as it continues to qualify as an EGC.  Once a company is established as an ECG, it must follow the accounting standards set forth for an EGC (Section 7(a)(2)(B) of the Securities Act and Section 107(b) of the JOBS Act), but it may voluntarily comply with some of the other regular disclosure requirements.   A decision to be an ECG for accounting purposes is irrevocable and the appropriate transition accounting rules must be filed.


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 market including the OTCBB and OTCQB. For almost two decades 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 crowdfunding, registration statements, PIPE transactions, private placements, reverse mergers, and compliance with the reporting requirements of the Securities Exchange Act of 1934 including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. 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 federal and state securities laws and SRO’s such as FINRA and DTC for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.

© Legal & Compliance, LLC 2012

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