Federal Securities: JOBS Act of 2012

Question 1

Federal Securities:

JOBS Act of 2012

Answer 1

• Securities law intended to make registration easier for small companies to raise capital
• Jump-start Our Business Startups
• Five Major Changes
  1. created “emerging growth companies”
  2. encouraged “crowdfunding”
  3. Increase Regulation A exemptions ceiling from $5 to $50
  4. Allowed private placements to use general solicitation and advertising
  5. changed the definition of “public company” in order to allow firms to grow bigger before required to go public

Question 2

Federal Securities:

Emerging Growth Companies

Answer 2

• allowed small firms to go public but delays filing requirements
• Criteria:
  1. have less than $1 billion in annual gross revenues
  2. publicly traded for less than 5 years
  3. have public float of less than $700M
  4. have not issues $1 billion in non-convertible debt in past 3 years
• remains EGC for 5 years after date of IPO
• Benefits:
  1. only 2 years of financials in IPO registration statement
  2. reduced disclosure of executive pay
  3. right to submit draft IPO registration statement for review
  4. exempt for 5 years from:
  
  • section 404(b)
  • new PCAOB rules
  • various executive compensation rules
    Allows more publicity around IPOs

Question 3

Federal Securities:

Crowdfunding

Answer 3

• process by which entrepreneurs can use the internet to raise capital. large # ppl, small amount of money.
• up to $1M in 12 month period from individual investors over the internet
• congress imposed several limitations and SEC will issue additional rules
• easier to invest, but less disclosure
• Other requirements
  
  • foreign companies cannot use crowdfunding
  • capped at $1M in 12 month period
  • limits amounts a single investor may invest to less than:
    
    • greater of $2,000 or 5% investor’s annual income if less that $100,000
    • 10% investors annual income or net worth not to exceed $100,000 if $100,000 or more
• invest only through a funding portal (go fund me) which must:
  
  • provide investors with risk
  • due diligence in background checks for officers, directors, and 20%+ owners
  • ensure that money is put in escrow until targeted amount reached
    Disclosures
• $100,000 or less: file most recent tax return and financials certified by CEO with SEC
• $100,000-500,000: also have financials reviewed by independent public accountant
• 500,000 to $1M: audited
  Cannot give portal owners the investors personal info
  State securities laws are preempted

Question 4

Federal Securities:

General Solicitation

Answer 4

• relaxes ban under Regulation D of general solicitation
• eliminates ban so long as investors are “accredited investors”
• requires issuer to confirm “accredited investor” status

Question 5

Federal Securities:
# shareholders

Answer 5

raised to 2,000