The JOBS Act IPO On-Ramp
I’ve written extensively on the Crowdfunding Act, or Title III of the Jobs Act, and much less extensively on the other five titles of the Act. Today’s blog will focus on Title I of the Jobs Act – Reopening American Capital Markets to Emerging Growth Companies. Several industry types have been referring to Title I as the IPO On Ramp and so will I.
The Jobs Act
The JOBS Act created a new category of companies defined as “Emerging Growth Companies” (EGC). An EGC is defined as a company with annual gross revenues of less than $1 billion that first sells equity in a registered offering after December 8, 2011. In addition, an EGC loses its EGC status on the earlier of (i) the last day of the fiscal year in which it exceeds $1 billion in revenues; (ii) the last day of the fiscal year following the fifth year after its IPO; (iii) the date on which it
Crowdfunding 101
As I recently blogged, the President has signed the Jobs Act including the much anticipated Crowdfunding bill. Crowdfunding is a process whereby companies will be able to raise small amounts of money either directly off their own website or using intermediaries set up for the purpose. The Securities Act of 1933, as amended, (Securities Act) prohibits the sale or delivery of any security unless such security is either registered or exempt from registration. Crowdfunding will be an exemption from registration. The exemption will likely be codified as a new and separate exemption likely under Regulation D and will include an overhaul of the current general provisions of Regulation D found in Rules 501-503.
Crowdfunding Exemption Possibilities
The exemption will likely be limited to $1 million in any twelve (12) month period, or up to $2 million if the company provides certain financial disclosure such as audited financial statements. As proposed, each investor will be limited $10,000 or 10%
Big Changes Are Coming
I’ve been practicing securities law for 19 years this year (phew!) and for the first time in my career I am excited about changes, big changes, on the horizon for small businesses. I’m talking about the JOBS Act and its ground breaking crowdfunding bill which has now been signed into law.
A Whole New Exemption
Over the years I have consistently received calls from potential clients that wish to use the exemptions provided for in Regulation D to raise money for small or start up ventures. Many of these individuals believe, mistakenly, that Regulation D provides them with a method to raise money. It does not. Regulation D only lays out rules to follow to utilize an exemption from the registration requirements in the Securities Act of 1933. These rules include such items as limitations on the dollar amount raised; who you can raise money from, how you can raise money, prohibitions on advertising and solicitation, disclosure documents required,
Gunjumping Restrictions On Communications Related To IPOs
”Gunjumping” is the dissemination of information regarding the Issuer before a complete prospectus has been filed with the Securities and Exchange Commission (“SEC”). Communications prior, during and immediately following the filing of a registration statement are strictly regulated to prevent an Issuer from hyping the market in association with an offering. In addition, the SEC wants to ensure that investors decisions to participate in an offering are based on information that has been reviewed by the SEC and meets the disclosure standards set forth in the securities laws.
Registration Requirements for Sales
During the pre-filing period, Section 5(c) of the Securities Act of 1933, as amended (the “Securities Act”) makes it “unlawful for any person, directly or indirectly, to… offer to sell or offer to buy… any security, unless a registration statement has been filed as to such security.” An offer to sell or offer to buy are broadly defined to include every attempt or offer to dispose of a
Back To Basics – IPO Or Not To IPO?
Initial Public Offerings (IPO’s) are on the rise once again. I have potential clients calling me daily interested in going public through an IPO, most have little or no prior knowledge of the public company arena – so back to basics. An IPO is an initial public offering of securities. Prior to proceeding with an IPO, an Issuer should consider the advantages, disadvantages and alternatives.
The advantages of an IPO include:
- Access to capital
- Liquidity of stock
- Public image and prestige; and
- Ability to attract and retain better personnel
The disadvantages of an IPO include:
- Expense – both of the initial transaction and ongoing compliance;
- Public disclosure of business information – public companies are required to be transparent which can give private competitors an edge;
- Limitations on long term strategic decisions
- Civil and criminal liability of executive officers and directors; and
- Takeover danger
The alternatives to an IPO for an Issuer seeking capital include:
- A Section 4(2) and/or Regulation D
Necessity of Background Searches on Officers and Directors as Part of Due Diligence Prior to a Reverse Merger or IPO
If you are a private company looking to go public on the OTCBB, securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel. Ms. Anthony counsels private and small public companies nationwide regarding reverse mergers, corporate transactions and all aspects of securities law.
Many private companies go public either through a reverse merger with a public shell or initial public offering (IPO) process. A reverse merger allows a private company to go public by purchasing a controlling percentage of shares of a public shell company and merging the private company into the shell. An initial public offering is where the private company files a registration statement with the Securities and Exchange Commission and once the registration statement is effective proceeds to sell stock either directly (a DPO) or more commonly through an underwriter.
It is very important that management of public shells and underwriters conduct a background check on the private company’s officers and directors prior to embarking
