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On April 5, U.S. President Obama signed the Jumpstart Our Business Startups (JOBS)
Act, a law intended to help small businesses and
startups raise capital. As we discussed in a post earlier this
year, the legislation provides a
"crowdfunding" registration exemption for transactions
involving individual investments not exceeding certain thresholds
based on an investor's income and net worth.
The amount raised under the crowdfunding exemption must also be
limited to an aggregate annual amount of $1 million. The issuer or
intermediary will also have to comply with certain requirements in
order to utilize the exemption, including with respect to providing
investor warnings, and resales of any securities purchased would be
limited for one year.
Of particular interest to Canadian companies are the Act's
provisions respecting emerging growth companies (those with annual
gross revenues of less than $1 billion), which also apply to
foreign private issuers. Among other things, EGCs will now be
permitted to communicate, orally or in writing, with qualified
institutional investors and institutional accredited investors to
gauge interest in a potential offering prior to the filing of a
registration statement.
The Act will also affect the disclosure obligations of EGCs by,
among other things, permitting an EGC to provide only two years of
audited financial statements in an IPO registration statement
instead of three years and reducing public company reporting
requirements post-IPO. For example, the JOBS Act amends the Sarbanes-Oxley Act of
2002 to exempt EGCs from the requirement that an
auditor attest to and report on management's assessment of
internal controls over financial reporting.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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