What is the JOBS Act?
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The Senate passed the Jumpstart Our Business Startups Act (JOBS Act) by a vote of 73-26. The Senate added new crowdfunding protections, the House will likely accept them as-is, and the President is expected to sign the bill.
I would like someone to define the JOBS Act in a very simple way. How would it benefit very early stage startups?
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Probably could have been an easy google search? – Tim J 12 years ago
1 Answer
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The JOBS Act mostly affects startups looking for investment, by eliminating a lot of red-tape associated with investing in companies, which is not necessarily a good thing. For those startups bootstrapping their way to success, it won't have much direct benefit.
The three main things to know about the JOBS Act:
Source Here's another good breakdown of the main points in the JOBS Act.
- It increases opportunities for equity investment. Though crowdfunding -- small-time Internet investment -- was not previously illegal, it had limitations. The JOBS Act removes those limitations. Most importantly, the JOBS Act allows small businesses to crowdfund equity investments, which should draw more investors into the trend.
- It eases rules on public disclosures. Previously, private companies with over 500 shareholders and $10 million in assets were required to comply with SEC public disclosure rules. Startups often felt forced to file an IPO. The JOBS Act increases that number to 2,000 shareholders, which should give companies the ability to seek more funding and time to plan for an IPO.
- It makes it easier to go public. The JOBS Act creates "emerging growth companies" -- those businesses with less than $1 billion in revenue. Emerging growth companies that wish to go public are exempt from some Dodd-Frank rules, and have fewer financial reporting requirements when filing an IPO.
The legislation also relaxes eligibility criteria for Regulation A, which exempts small securities offerings from certain SEC filing requirements. Congress has raised the exemption eligibility amount from $5 million in offerings to $50 million.
For a counterpoint, take a look at this article, and this article, on why it is bad legislation.
Update: The JOBS Act was signed into law on April 5, 2011.
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Yikes - this sounds like a bad idea that will have serious negative repercussions if passed. – Tim J 12 years ago
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@TimJ Why do you think is a bad idea? – Zapoo 12 years ago
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@Jay - did you read the links Zuly provided? Because although we in the tech startup industry see "crowdfunding" as good and in general paring back federal rules on overbearing accounting and reporting are good for honest companies - it will allow the Mobster boiler rooms and criminal elements to hoodwink people again. Not to mention make it easier for enron type shenanigans. I don't know the answer to these issues, but this one seems like a knee-jerk reaction that is not well-planned or thought out. I am generally libertarian and anti-regulation, but these changes can be abused. A lot. – Tim J 12 years ago
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$1B is a lot of revenue! Defining "emerging" as any company with less than $1B in revenue seems WAAAAY out of touch and seems to fly in the face of the common sense and ostensible purpose of the bill - to generate jobs through SMALL businesses (which is where most people are employed). – Tim J 12 years ago
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Ok- Now, I get you! – Zapoo 12 years ago
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Perhaps, but Enron et al were able to get away with what they did because their enormous size and capital helped obscure key details about company operations. Small businesses fall apart immediately if they arouse suspicion by witholding information from investors, who are arguably more vigilant simply because the business is small and new. Would the kind of people who fell for Enron also fall for a small business equivalent? Maybe, but not with the same kind of losses. Ultimately, regardless of the legislation, investors need to wisen up. – Henry The Hengineer 12 years ago
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