The JOBS Act (Jumpstart Our Business Startups Act) is legislation that eases regulatory restrictions for new businesses to make it easier for startups to get established.
The intention of the Act is to encourage more business startups, foster their success, and as a result, create more jobs and stimulate the economy. As stated in the bill, which passed as H.R. 3606, the purpose is “to increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies.”
The main provisions of the JOBS Act:
- Businesses are not required to register their common stock with the SEC (Securities Exchange Commission) until they have 500 unaccredited shareholders or a total of 2,000 accredited and unaccredited shareholders. Previously, that requirement went into effect when a business had a total of 500 shareholders of record. A non-accredited investor is one that does not meet the SEC’s standard for accreditation: A net worth of $1 million and an annual income of $200,000, or $300,000 in combination with a spouse’s income. This provision allows a startup to collect smaller sums of money from a larger pool of investors.
- Certain types of small initial public offerings (IPO) are no longer required to register with the SEC. Restrictions are loosened on government-registered Internet-based “funding portals.” This provision was created to enable crowdfunding. Conditions include a limit on the amount an investor can contribute, up to the lesser of either 10 percent of income or $10,000.
- Emerging growth companies are not bound by some regulatory and disclosure requirements – in particular, some stipulations of Section 404 of the Sarbanes-Oxley Act -- in their initial public filing and for a period of five years after that, up from two. SOX Section 404 mandates that all publicly-traded companies must establish internal controls and procedures for financial reporting and must document, test and maintain those controls and procedures to ensure their effectiveness.
- Small businesses are now allowed to advertise seeking investors.
- Companies can raise $50 million in share sales, up from a $5 million limit, before being required to register with the SEC, to enable more fundraising under less complex regulation.
- Community banks are permitted to have 2,000 shareholders, up from 500.
The JOBS Act was signed into effect by President Barack Obama on April 5, 2012.