Last week, Republicans on the Senate Banking Committee introduced JOBS Act 4.0, a bill commemorating the tenth anniversary of the JOBS Act.
The proposal is intended to spur new business ventures by encouraging young firms to trade on public markets, protecting retail investors, and tailoring regulations to smaller firms.
“The JOBS Act helped to revitalise interest in the public markets and spur economic growth, but it is clear significant work remains to be done to give retail investors access to higher returns and ensure American markets remain the deepest and most liquid in the world,” Senator Pat Toomey said in a statement.
The new plan incorporates ideas from entrepreneurs, retail investors, and others and numerous provisions with strong bipartisan support.
“The discussion draft we’re releasing today incorporates ideas from entrepreneurs, retail investors, and others and includes numerous provisions with strong bipartisan support.
“I look forward to working with both Republican and Democrat colleagues on a final product that accelerates economic growth and spurs new job creation across the U.S,” he added.
Revisiting the JOBS Act 2012
President Barack Obama signed the Jumpstart Our Business Startup, or JOBS, Act of 2012. Essentially, the Act repeals the prohibition on “general solicitation,” which holds that a company cannot advertise itself to investors.
As a result, the act established online capital formation or investment crowdfunding, with three exemptions legalising firms’ ability to raise growth capital online.
The following legislation was enacted to digitise access to finance, allowing both accredited and non-accredited investors to support early-stage firms and other asset classes.
Reg CF: Reg CF is the U.S. rule set that permits start-up businesses to raise $5 million from investors, regardless of accreditation.
Reg A+: Regulation A+ allows companies that want to raise between $3 million and $75 million to do so from anyone – regardless of assets and income levels. Traditionally, only accredited investors (people making $200,000 or more for two most recent years or with a net worth of $1 million) were allowed by the Securities Exchange Commission to invest in startups.
Reg D 506c: Finally, the JOBS Act directed the SEC to lift the ban on general solicitation for offerings conducted under Rule 506, provided that issuers A.) sell securities only to accredited investors and B.) take reasonable steps to verify that all purchasers in an offering are accredited.
What are the new provisions suggested in JOBS 4.0?
If passed, the legislation would broaden the SEC’s definition of an “accredited investor” and allow investors with fewer means to buy stock in promising but private companies.
Current law requires any company that wishes to sell securities to the public to register with the SEC and file regular financial reports or qualify for a legal exemption.
Furthermore, the draft bill seeks to facilitate firm funding, improve the market for private capital, and improve access to investment opportunities for smaller (retail) investors.
The JOBS Act 4.0 aims to:
- Encourage companies to be publicly traded – includes eight initiatives to encourage companies to become publicly traded, particularly during earlier growth stages, when investors have the chance to earn the highest returns.
- Improve the market for private capital – includes six initiatives to reduce costs associated with seeking capital by appropriately tailoring regulations for small businesses.
- Enhance retail investor access to investment opportunities — includes eight initiatives to prevent retail investors from being excluded from certain investment opportunities.
- Improve regulatory oversight — includes seven initiatives to enhance investor protection and privacy and update outdated statutory and regulatory provisions.
Here’s more on it.
Feedback on the discussion draft is being accepted through June 3, 2022. To submit feedback, email submissions@banking.senate.gov
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