Small businesses are finally getting the attention they deserve. The House of Congress recently approved the Jumpstart Our Business Startups (JOBS) Act by an incredibly wide margin of 390 to 23, reports the New York Times. This shows signs of hope that both Republicans and Democrats will step up to answer the needs of small businesses, as they are beginning to realize the huge role small businesses play in revitalizing the economy. Here is a guide to the newly introduced JOBS Act:
Introduction to the JOBS Act 101
Reopening American Capital Markets to Emerging Growth Companies Act
This part of the JOBS Act aims to lower the costs of going public for small companies, by slowing down the application of certain regulations by the Securities and Exchanges Commission (SEC). This bill designates emerging growth companies, which will generally appear to have less than $1 billion in annual gross revenue. This act also aims to protect investors by requiring the emerging companies to provide audited financial statements, which seems like a way to compensate for the decreased SEC regulations.
The Access to Capital for Job Creators Act
Do not be misled by the name: it’s not very clear why this was specifically named for “Job Creators,” except perhaps as a shout-out that businesses create jobs. In 1982, the SEC established a rule that banned small businesses from using advertisements to solicit investors. In other words, as a small business, you could not seek funding through print or broadcast advertising; nor could you solicit investors at a public, generally advertised event. This new act would remove that ban, hopefully giving businesses a new avenue for seeking capital.
The Entrepreneur Access to Capital Act
The SEC also had restrictions on crowdfunding that allows entrepreneurs to raise capital by a general solicitation, and which may or may not be right for your small business. Generally speaking, the SEC placed a cap on the number of investors a small business could have before entering into tricky legal territory. By allowing crowdfunding, this law lets small businesses raise capital from a “large pool of small investors,” or a big group of people who each want to contribute a small amount.
With the JOBS Act, each investor can contribute up to $10,000 of 10 percent of his or her annual income, whichever is the lower amount. A company can raise up to $1 million without registering with the SEC or $2 million if the company can provide audited financial statements. This is fairly up-to-date legislation, as you can find a lot of crowdfunding online at websites like Kickstarter and RocketHub.
The Small Company Capital Formation Act
This act is much like “Reopening American Capital Markets” Act, since it allows more companies to enter the public market unimpeded. Companies were usually exempt from SEC registration if they kept their offering under $5 million. That exemption amount has just been raised to $50 million. With such a huge jump, this act seems to benefit companies that really toe the line between small and big businesses.
The Private Company Flexibility and Growth Act
In 1964, the SEC ruled that companies would have to register as a public company if they had 500 or more shareholders. The new act would raise that threshold to 1000 companies. This is fairly similar to the legislation that opens up crowdfunding for small businesses.
The Capital Expansion Act
Similar in tone to the last act, this legislation allows community banks to accept more shareholders without added regulation. Community banks were once limited to 500 shareholders, but now they can have up to 2,000 shareholders. Hopefully, with this new act, small business owners and entrepreneurs will have more access to community bank loans. This would be a boon for many small business, as community banks typically have more favorable interest rates than the big banks, according to a report by Bankrate.com.