In April this year, President Obama signed into law the Jumpstart Our Business Startups Act (aka the “JOBS Act”), which includes a number of provisions aimed at easing access to capital for entrepreneurs with the goal of ultimately creating new jobs.
Crowdfunding from Non-Accredited Investors
The JOBS Act eases restrictions on equity-based crowdfunding to allow investments by all investors, not just accredited investors. Any non-credited investor can invest up to the lesser of 10 percent of annual income or $10,000. Crowdfunding investments will still need to file with the Securities and Exchange Commission (SEC), and are restricted to raising $1 million annually, or $2 million if they have filed audited financial statements.
Crowdfunded companies will need to provide the SEC with names of directors, officers and any shareholder with more than 20 percent of the company’s stock, as well as a business description and the following financial information:
If raising less than $100,000, then financial statements must be certified by a company principle
If raising between $100,000 and $500,000, then financial statements must be certified by a CPA
If raising $500,000 or more, then financial statements must be audited by a CPA
More Growth Allowed Prior to SEC Registration
The JOBS Act raises the Regulation A threshold from $5 million to $50 million in a 12-month period before having to register with the SEC. This will likely be of great use to angel-funded ventures.
The JOBS Act also expands the limits currently set for registration with the SEC. Currently; a company must register once it reaches 500 investors and total assets of $10 million. The new law increases those limits to 2,000 investors or 500 non-accredited investors and $10 million in total assets. Companies will have 120 days of the first fiscal year in which they exceed these caps to register. There is no specific deadline for implementation of this provision.
Easier Path to Going Public
Effective immediately, the JOBS Act adds an SEC stock issuer category called “emerging growth company.” An emerging growth company is defined as having less than $1 billion in gross revenues in its previous fiscal year and less than $700 million in publicly traded shares after an IPO. These companies will receive a five-year exemption from some SOX 404(b) requirements, such as hiring outside auditors. If you have filed for an IPO since December 8, 2011, you may retroactively apply for “emerging growth company” status.
Greater Ability to Attract Accredited Investors
The Act removes the SEC ban on advertising Regulation D 506 stock offerings to attract accredited investors to a non-public offering.
These new provisions are likely to drastically shift reporting compliance requirements while opening more sources of funding for entrepreneurs. If you have any questions as to what opportunities may exist for you and your business under the JOBS Act, contact your Simply-Bookkeeping consultant.