House Approves JOBS Act to Spur Entrepreneurship and Small Business Growth

Press Release

Today Congressman Scott Rigell (VA-2) voted for and the House passed the JOBS (Jumpstart Our Business Startups) Act 390-23. The bill is a legislative package of bipartisan measures that would increase capital formation, spur the growth of startups and small businesses, and enable more small-scale businesses to enter public markets. The measure has the support of the Obama Administration and now goes to the Senate for consideration.

"Washington must do everything in its power to unleash the greatest job-creating force the world has ever known: the American entrepreneur," said Rigell, who spent 30 years in business before being elected to Congress. "Part of that is simply government getting out of the way by rolling back excessive regulations on folks trying to start businesses.

"Another thing we must do is create an atmosphere of economic certainty in America," Rigell continued. "For too long our American entrepreneurs have been unwilling to put capital at risk because of the uncertainty the President's policies have created. Today we're taking a step toward that certainty these small businesses need. I urge the Senate to do its part and act on this important legislation."

According to the Kauffman Foundation, startups have created nearly 40 million jobs since 1980 and the Small Business Administration shows small businesses generate over 60% of new jobs in this country. However, the Bureau of Labor Statistics recently announced that entrepreneurship is at a 17-year low.

"To truly boost job creation and certainty in America we must continue to pursue American energy independence and repeal the Affordable Care Act that is putting such a strain on American businesses and our federal budget," Rigell said.

About the JOBS Act:

TITLE I--REOPENING AMERICAN CAPITAL MARKETS TO EMERGING GROWTH COMPANIES

This section would amend the Securities Act of 1933 (SA) and the Securities Exchange Act of 1934 (SEA) to define "emerging growth company" (EGC) as an issuer with total annual gross revenues of less than $1 billion during its most recently completed fiscal year.

The bill would also amend SEA and the Dodd-Frank Act of 2010 to exempt EGCs from the requirement for separate shareholder approval of executive compensation, including golden parachute compensation.

Additionally, EGCs would be exempted from Section 404(b) of the Sarbanes-Oxley Act (P.L. 107-204) for a longer transition period--up to five years--instead of the current transition period of two years. To ensure sufficient investor protections, management would be required to establish and maintain internal controls over financial reporting, as mandated by Sarbanes-Oxley Section 404(a), and comply with Sarbanes-Oxley's requirement that the company's chief executive officer and chief financial officer certify the company's financial statements.

The bill would also amend SA to state that an EGC need not present more than two years of audited financial statements in order for its registration statement, with respect to an initial public offering of its common equity securities, to be effective.

The bill would also prohibit the mandatory rotation of an EGC's audit firm to avoid the unnecessary costs of changing from an auditor familiar with the company to one that is not, and would amend the Sarbanes-Oxley Act to exempt a registered public accounting firm that prepares or issues a report on its audit of an emerging growth company from the requirement that it attest to, and report on, any assessment of internal controls the company's management has made.

H.R. 3606 would give EGCs the opportunity to "opt-in" to certain regulations by complying with them before they lose EGC status. However, if the Financial Accounting Standards Board adopts new accounting standards while a company is an EGC, the EGC would be required to comply with either all or none of the new standards while it remains an EGC.

The bill would improve the flow of information about EGCs to investors by removing restrictions on communications between companies, research analysts, and investors. (Existing Securities Exchange Commission (SEC) rules prohibit investment banks that underwrite a company's IPO from publishing research on companies that would be classified as EGCs.) The bill would allow investors to obtain research reports about an EGC before or at the same time as its IPO. However, the bill would maintain other protections in this area, such as Sarbanes-Oxley Section 501, that address potential conflicts of interest that can arise when analysts recommend equity securities.

Lastly, the bill would amend SA to authorize an emerging growth company, before its initial public offering date, to submit to the SEC a draft registration statement for confidential nonpublic review by SEC staff before the public filing, provided that the initial confidential submission and all amendments to it are publicly filed with the SEC within 21 days before the issuer conducts a "road show." However, the bill would declare that the SEC shall not be compelled to disclose such information. (A "road show" is an industry term referring to an offer that contains a presentation regarding an offering by one or more members of the issuer's management and includes discussion of the issuer, its management, and/or the securities being offered.)

TITLE II--ACCESS TO CAPITAL FOR JOB CREATORS

This section would amend the SA and direct the SEC to eliminate the restriction under Regulation D Section 506 prohibiting the solicitation or advertising of an equity offering by certain issuers.

The bill would require the SEC to establish rules to ensure that only "accredited" investors purchase such securities.

TITLE III--ENTREPRENEUR ACCESS TO CAPITAL

This section would amend the SA to establish an exemption from the requirement that certain securities be registered with the SEC. Specifically, the bill would exempt securities from registration requirements if:

* The aggregate amount raised through the issuance is $1 million or less each year ($2 million or less if the issuer provides investors with certain financial information); and
* Each individual who invests in the securities does not invest, in any year, more than the lesser of $10,000 or 10 percent of the investor's annual income.

In order to qualify for this exemption, the bill would also require issuers or intermediaries acting between issuers and investors to provide certain information and risk disclosures to investors, such as warnings of the speculative nature generally applicable to investments in startups, emerging businesses, and small issuers. The bill would also require issuers or intermediaries to provide information about the issuer and offering to the SEC, in addition to providing continuous investor-level access to the intermediary's website and maintaining such books and records as the SEC deems appropriate.

Additionally, the bill would require the SEC to develop regulations to implement this new authority and to set out actions that would disqualify certain individuals from issuing securities under the exemption.

TITLE IV--SMALL COMPANY CAPITAL FORMATION

This section would amend the SA to direct the SEC to exempt from its regulation a class of securities for which the aggregate offering amount is between $5 million and $50 million, subject to specified terms and conditions.

The bill would authorize the SEC to:

1. Require an issuer of such exempted class of securities to make periodic disclosures available to investors regarding the issuer, its business operations, its financial condition, and its use of investor funds; and
2. Provide for the suspension and termination of such a requirement with respect to that issuer.

Additionally, the bill would require the SEC to:

1. Review and increase biennially such offering amount limitation, as appropriate; and
2. Report to certain congressional committees on its reasons for not increasing the amount if it determines not to do so.

TITLE V--PRIVATE COMPANY FLEXIBILITY AND GROWTH

This section would raise the threshold for mandatory registration under the SEA to change the thresholds for total assets and for class of equity security holders of record which trigger the requirement for a securities issuer to register with the SEC. Specifically, the bill would increase the total assets threshold from $1 million to $10 million, and the class of equity security holders of record threshold from 500 to 1,000 persons.

The bill would also exclude securities held by shareholders who received such securities under employee compensation plans from the 1,000 shareholder threshold.

TITLE VI--CAPITAL EXPANSION

This section would amend the SEA to increase the number of shareholders permitted to invest in a community bank from 500 to 2,000.

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