Although the Jobs Act had not yet had significant impact on smaller businesses, the potential for future positive impact remains strong. For start up and early stage companies, two aspects of the JOBS Act could prove beneficial.
The first is the change to Rule 506 to allow for the first time advertising, or what the SEC calls general advertising and solicitation, for investors in a Regulation D private placement. Although limited to private offerings where all of the investors are Accredited as defined in Regulation D, this represents the first opportunity start up and early stage companies have had to advertise for investors on the internet and elsewhere. What’s the hang up? The SEC was required to adopt rules to implement this provision by July 4, 2012. Instead, the SEC has merely issued proposed rules for comment and has not adopted a final rule. Thus start up and early stage companies still cannot utilize this provision of the JOBS Act.
Second, Crowdfunding is allowed under the JOBS Act. This may be an exciting opportunity for start up and early stage companies to raise up to $1,000,000 and start a path to going public utilizing to-be-developed Crowdfunding Websites that will act much like Kickstarter or Indegogo. However, just like the 506 Rules, the SEC has to adopt rules to implement Crowdfunding. However, although the statute required the rules be in effect by December 31, 2012, the SEC hasn’t even proposed the Rules for Crowdfunding. The SEC even warns small business on its website: On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act requires the Commission to adopt rules to implement a new exemption that will allow crowdfunding. Until then, we are reminding issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws. Thus start up and early stage companies still cannot utilize this provision of the JOBS Act. We remind our start up and early stage clients, however, that even with Crowdfunding, they may need liquidity for their investors and so we urge them to talk to us before starting a crowdfunding project so we can set it up so they can achieve liquidity for investors even without the large expense of having to become an SEC reporting company.
It’s not the JOBS Act itself but rather the SEC’s failure to implement Rules in the JOBS Act that could be beneficial to start up and early stage companies, despite specific time deadlines in the Act itself, that has frustrated Congress’ intention in the JOBS Act.
Mr. Williams invites questions and comments about the JOBS Act or other topics related to start up and early stage companies and the federal securities laws. Contact him here.