U.S. Representatives John Carney (D-DE) and Stephen Fincher (R-TN) today introduced H.R. 3606, the Reopening American Capital Markets to Emerging Growth Companies Act of 2011. The legislation would reduce the costs of going public for small and medium-sized companies by phasing in certain regulatory requirements. Over the last ten years, the number of companies going public has fallen dramatically, hurting the ability of small companies to grow, innovate, and hire new workers.
The legislation creates a new category of issuers, called "emerging growth companies," that have annual revenues of less than a $1 billion and following the initial public offering (IPO), less than $700 million in publicly traded shares. Exemptions for these "on ramp" status companies would end either after five years, or when the company reached $1 billion in revenue or $700 million in public float. The bill mirrors legislation introduced by a bipartisan group of U.S. Senators last week.
"Making it easier for small companies to grow is the best way to create jobs and grow the economy," said Congressman Carney. "This legislation will encourage more entrepreneurs to start businesses and allow more start-ups to become public companies."
Congressman Fincher said, "Small companies are our nation's best job creators, but have been the hardest hit by burdensome regulations. On average, 92 percent of a company's job growth occurs after an IPO. It is imperative we reduce regulations to help these small companies create private jobs for Americans."
The legislation will make it easier for potential investors to get access to research and company information in advance of an IPO. This is critical for small and medium-sized companies trying to raise capital that have less visibility in the marketplace. Currently, there are regulations in place that make it difficult for investors to find the detailed research reports they need to make an informed decision about new companies.
The legislation also amends Section 404(b) of Sarbanes-Oxley to delay hiring an additional outside auditor to verify the company's internal controls for the five year "on ramp" period. Section 404 regulations cost companies over $2 million per year, with Section 404(b) accounting for 32.5 percent of those costs. In addition, this bill would only require Emerging Growth Companies to provide audited financial statements for the two years prior to registration rather than three years, saving the companies millions.