The development of the JOBS Act was brought forth to create new jobs by removing the barriers of obtaining funding for all companies, big and small. Here are two specific provisions within the JOBS Act that have made this possible:
IPO On-Ramp Provision
This provision that has been put in place will help make IPOs more accessible by creating an “IPO On-Ramp”. An IPO On-Ramp can be described as the process of an initial public offering easier and more attractive. This provision is only available to “Emerging Growth Companies”, which are defined as:
● A company that has less than $1 billion in gross revenue during its immediately preceding fiscal year
● A company that has not yet made a registered sale of common equity securities, or has done so in the last five years
● A company that has not issued more than $1 billion in non-convertible debt securities in the preceding three years
● A company that is not under the ‘34 Act, defined as a “larger accelerated filer”.
● A company will take on this title once its common equity held by non-affiliates reaches $700 million.
This provision is only available to companies who have registered offerings post December 8, 2011, as prior to this date, the definition above does not apply.
There is no longer the need to obtain funding from a smaller number of funding sources. Going further into detail, the Exchange Act Trigger allows for more record shareholders to exist. These new thresholds are: $10 million in assets and a class of equity securities held of record by either:
● 2,000 persons, or
● 500 persons or more who are not “accredited investors” as defined under applicable SEC rules.
In this situation, an “accredited investor” includes persons or entities that meet a certain income or net worth requirement.
Exceeded limitations will trigger registration of that class of equity securities with the SEC under the ‘34 Act will commence as per normal circumstances.
With more attractive IPO opportunities through the IPO On-Ramp and the new thresholds brought forth in the Exchange Act, companies can now build substantial growth before needing to commit to the long-term reporting requirements that have possibly been the culprit of halted growth.
There are several more points of change where the JOBS Act has brought forth less impactful securities regulations. With provisions like this being added, we are sure to see many more Emerging Growth Companies come into play that will not only help the United States become a better place with new products, but also create thousands of jobs for the US economy.
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