Why is Jobs Act important?

Jumpstart Our Business Startups Act or JOBS Act is a law that former president Barack Obama signed on April 5, 2012. The purpose of the act is to increase ability of small businesses to raise capital and generate jobs but also improve financial opportunities for all American citizens and not just wealthy investors. Of all seven titles of the bill Title III that refers to crowdfunding drew most attention. Provisions of the bill made easier for companies go public but also to raise capital and stay private longer.

Act defined the term emerging growth company as a company that has less than $1 billion total annual gross revenue in recent fiscal year. The JOBS act provided such businesses with temporary relief from certain SEC requirements which made taking your company public a lot easier. The most significant relief are the exemption from audit of internal controls required under Section 404(b) of the Sarbanes-Oxley Act of 2002.

It allowed new exemptions from registration requirements for certain type of offering. Companies could sell equity through crowdfunding, government registered funding portals. This allowed smaller companies to raise up to $1.07 million from both accredited and non-accredited investors but investors are limited by amount they can invest. Crowdfunding Act was particularly appealing because it allowed selling of securities through crowdfunding which is something that wasn't permitted before.

Act contributed to democratization of investing in a way that it allowed non-accredited investor to invest in startup companies that in their belief have potential and enjoy return on investment. Also the number of shareholders needed for SEC registration increased to 2,000 total investor or 500 non-accredited investors, plus $10 million or less in assets. This allowed small companies to grow their business and expand shareholders base before they are required to register with SEC.

Not only rules regarding shareholders have changes but also the amount of capital that company can raise before it register with the SEC. Regulation A raised threshold from $5 million to $50 million of capital raised from the public in a 12 month period before company must be registered with SEC. Reg A is divided into two tiers: Tier 1 where you can raise $20 million and Tier 2 with maximum capital raise of $50 million and additional exemption from Blue sky laws.

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