Impacts of the JOBS ACT by Carolyn Flaherty

The Jumpstart Our Business Startups Act, known as the JOBS Act allows middle market company investment opportunities such as:

• raising small amounts of money using the Internet
• staying a private company longer and raising money in private placements from sophisticated investors
• raising significant sums of money, up to $50 million, in a 12-month period in a new Regulation A+ hybrid offering mechanism
• Tapping the U.S. capital markets in an initial public offering sooner than management may have considered

The JOBS Act also creates an “on-ramp” for middle market, non-public companies to access the IPO markets by easing accounting and reporting requirements for qualified emerging growth companies, (ECG). An emerging growth company is a company with less than $1 Billion that issues new common equity after December 8, 2011.

As a result of the JOBS ACT emerging growth companies are:

• Exempted from the requirement to have auditor reporting on their internal control systems
• Exempted from adopting new or revised accounting standards until the effective date of such standards for nonpublic companies
• Not generally subject to future PCAOB rules that require mandatory audit firm rotation or a supplement to the auditor’s report unless the SEC determines that the application is necessary for the public interest
• Allowed to present only two rather than three years of audited financial statement in the initial registration statements
• Exempted from requirements from certain Regulation S-K disclosure information
• Allowed an increased exemption limit for small offerings under Regulation A
• Able to enjoy scaled executive compensation disclosure

In addition emerging growth companies have the benefits of being able to file confidential submission drafts of registration statements to the SEC before filing and can also test the IPO waters by communicating with potential investors before a registration statement is filed.

Once a company achieves ECG status, the company can maintain this standing for up to five years after closing its first sale of common equity or until the occurrence of one of the below listed events (whichever is earlier):

• The last date of the fiscal year with gross revenues over $1 billion
• The date where over the previous three-year period $1 billion in nonconvertible debt has been issued
• The date on which the issuer is deemed a large accelerated filer