Originally published June 26, 2012

On April 5, 2012, the President signed into law the JOBS Act (Jumpstart Our Business Startups).  This important legislation introduces the most sweeping pro‑issuer changes to the federal securities laws in decades, with a focus on the capital formation needs and challenges of smaller and emerging growth companies.

While much of the statute is devoted to simplified initial public offering rules and procedures for emerging growth companies (those not already publicly traded and with annual gross revenue of less than $1 billion), of greater relevance to smaller and growing entities  are the provisions that:

  • Permit general advertising and solicitation in private (non‑SEC registered) offerings of securities (Rule 506 of Regulation D) in which all of the purchasers meet the SEC's "accredited investor" criteria, without the need for state‑level securities registration.  (Regulation of "finders," placement agents and broker‑dealers remains unchanged and requires consideration.
  • Expand from $5 million to $50 million the amount issuers can raise (in any 12 month period) under the Regulation A exemption, which involves simpler disclosure than full SEC registration and, now, can be done without state‑level registration if limited to qualified purchasers.
  • Provide a road‑map for issuers to engage in "crowd-funding" (up to $1 million in any 12‑month period) using the internet and raising, through SEC‑regulated "portals" or brokers, smaller investments from larger numbers of investors.

Each of these provisions is subject to SEC rule‑making, and should not be utilized until those rules have been issued.  The Rule 506/Regulation D rules are scheduled to be published not later than July 4, 2012; the crowd‑funding rules are slated to become available by early January, 2013; the Regulation A rules do not have a fixed timetable.

The anti‑fraud provisions of the securities laws continue to apply, as do numerous technical criteria applicable to these offerings and sales, so care must still be taken to avoid or mitigate the risk of non‑compliance, which can result in individual liability for participants in these offerings.  However, these relaxations of the rules previously applicable to securities offerings by smaller, growing companies present exciting, expanded opportunities to access capital less expensively and more effectively, and should be carefully considered by entrepreneurs in need of growth funding.

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.