Category Archives: starting a business

What Is The JOBS Act?

The Internet has lead to a bonanza for entrepreneurs who wish to raise capital for their businesses. A recently passed law has added a new way for them to raise such funding.

On April 5, President Obama signed the Jumpstart Our Business Startups Act (“JOBS Act”). The law is intended to help create new jobs by loosening securities law burdens on smaller companies that attempt to raise capital. It has significant effects on how capital can be raised online and through social media.

“For startups and small businesses, this bill is a potential game changer,” Obama said after signing the law. “Startups and small businesses will now have access to a big new pool of potential investors, namely the American people.”

One significant aspect of the JOBS Act is the effect it will have on “crowdfunding.” This term describes the process of companies soliciting investors and raising funds online, typically by having a number of investors each pool a (usually) small amount of money together. The law is rather complex, and there are a number of requirements and exceptions that apply. However, in general:

  • The JOBS Act may provide under certain specific circumstances a limited exemption from the Securities Exchange Act (“Securities Act”), allowing private companies that are not registered with the SEC to offer up to $1 million in crowdfunding transactions during any 12-month period.
  • For investors with an annual income or net worth of less than $100,000, under specific circumstances, an investment must be no greater than $2,000 or five percent of the investor’s annual income or net worth (whichever is larger).
  • For investors with an annual income or net worth of more than $100,000, under specific circumstances, an investment must be no greater than 10 percent of the investor’s annual income or net worth.

See Sec. 302(a)(6).

According to the JOBS Act, the SEC must issue regulations within 270 days of the signing that it deems necessary or appropriate to carry out the crowdfunding provisions. Sec. 302(c). The exemptions are not available to public companies in the United States, to foreign private issuers or to private investment companies (hedge funds, etc.).

Additionally, the JOBS Act requires the SEC to amend Rule 506 of Regulation D and Rule 144A of the Securities Act in order to permit general solicitation or advertising in connecting with the private offers or sales of securities. § 201(a). The amendments to these “safe harbor” provisions would allow such solicitation as long any purchase of securities that results is made by an accredited investor.

The JOBS Act, and the related changes to the Securities Act, should give companies greater access to capital. Fewer restrictions should make it easier to crowdfund and transact with investors. The JOBS Act can be viewed here.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC