The U.S. Senate passed the Jumpstart Our Business Startups Act (JOBS Act) on Thursday, ushering in a new era of investment regulation. Some are even calling the JOBS Act a small-business investment bill. In some ways it is, as many of the provisions target startups hoping to make it big. Nonetheless, the JOBS Act potentially affects all small businesses seeking some type of outside investment. Therefore, all small business owners should know the following three things about the JOBS Act.
1. It increases opportunities for equity investment. Though crowdfunding—small-time Internet investment—was not previously illegal, it had limitations. The JOBS Act removes those limitations. Most importantly, the JOBS Act allows small businesses to crowdfund equity investments, which should draw more investors into the trend.
2. It eases rules on public disclosures. Previously, private companies with over 500 shareholders and $10 million in assets were required to comply with SEC public disclosure rules. Startups often felt forced to file an IPO. The JOBS Act increases that number to 2,000 shareholders, which should give companies the ability to seek more funding and time to plan for an IPO.
3. It makes it easier to go public. The JOBS Act creates “emerging growth companies”—those businesses with less than $1 billion in revenue. Emerging growth companies that wish to go public are exempt from some Dodd-Frank rules, and have fewer financial reporting requirements when filing an IPO.
The legislation also relaxes eligibility criteria for Regulation A, which exempts small securities offerings from certain SEC filing requirements. Congress has raised the exemption eligibility amount from $5 million in offerings to $50 million.
There are a few more hurdles for the JOBS Act to clear. The U.S. House of Representatives is set to vote on the bill next week, before President Obama signs it into law.
But as you can see, whether you’re a startup or an established small business, the JOBS Act can help you grow. Still, keep in mind the law is new, which means you should probably check with an attorney or financial advisor before you take advantage of any of its provisions.
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