A closer look at JOBS Act - and Crowdfunding.

The JOBS Act was signed into law by President Obama on April 5th, 2012. The House originally passed the Act, and then it was amended by the Senate on March 22, 2012. This Act makes changes to a lot of different laws to attempt to make it much easier to raise private capital. This applies to a lot of emerging companies that want private capital and they wish to stay private longer. In addition, it reduces the regulatory burdens on certain public companies that are new and allows them to raise the money on the internet. If securities are held by 500 people or more issuers are required to register that class of securities with the SEC. This makes these securities extremely burdensome with regard to reporting obligations. They have to file very detailed quarterly and annual reports with the SEC. With the passing of the Act, the threshold has now risen to 2,000 holders of record. One of the provisions is that no more than 499 of those investors qualify as an “accredited investor” under SEC rules. One of the positive aspects is that persons who purchase securities pursuant to crowdfunding are exempt. This will open the door for entrepreneurs to receive a new method of funding and this is something that is extremely positive for start-ups. The enactment of the JOBS Act is effective immediately. The regulatory agency (SEC) is going to have to adopt rules and revise what they call “held of record”. The rulemaking for the SEC revisions should take place within the next 270 days. It passed Congress last week through a 73-26 Senate vote and a 380-41 House vote, including an amendment designed to protect crowdfund investors in order to make it easier for start-ups to access capital. What this means for entrepreneurs: 1. More Control over the Timing of Going Public. 2. Less Impacted by Potential Reporting Requirements. 3. Potential Impact on Secondary Markets. 4. Eliminates the Prohibition Against General Solicitation and Advertising 5. Reach a Wider Pool of Investors 6. Lowers the Investors Wealth Requirements 7. Gives the Start-up a 5 Year Plan to Develop “Simply, the JOBS Act will make funding more accessible for startups by allowing non-accredited investors to participate in the funding rounds, and this alone, I believe will be the main factor driving the increase in new companies being founded. And with new companies comes the need to hire staff. Without a doubt, this will help the current unemployment rate,” said Tanya Prive, founder of Rock The Post, a social networking platform for entrepreneurs to fund and swap resources. Rory Eakin, founder of CircleUp, an equity-based crowdfunding platform focused on established high-growth consumer and retail companies, added: “Currently, less than one percent of U.S. small businesses receive Angel investments. By opening up restrictions around general solicitation and introducing crowdfunding…these investments create up to six jobs per investment.” Companies like Indiegogo or Kickstarter were offering a way the companies could raise money from average person that did not meet the “accredited investor” criteria as defined by the SEC. The problem was that the persons contributing could not take a piece of the equity and benefit directly from profits and losses. The new law makes it much more enticing to the investors because they are allowed to participate and benefit in the upside of the company. The new law that is enacted now allows for companies to use crowdfunding to seek out and find the actual investors. It can now raise up to $1,000,000 this way. Investors with a net worth less than $100,000 may now invest up to 5% of their yearly income or $2,000 whichever is higher. Wealthier individuals can invest up to 10% of their annual income. The measure as it passed the House limits individual contributions to $10,000 or 10 percent of the investor’s annual income. The democrats in the House and Senate argued against the de-regulation and suggest that it is going to open the door to a wide variety of abuses and scandals. The republicans are in favor of relaxed regulations and they argue that we have to make it easier for start-ups to get their companies up and running. After all, small business is the engine that fuels growth and jobs in our economy. writtern by Edward E. Cambas.