JOBS Act 4.0
Jumpstarting the next JOBS Act
 Sep 28, 2022
Reuters | Sean Donahue and Lauren Visek

Given current increased stock market volatility and the decreased number of IPOs in 2022, a discussion draft of proposed legislation by Senate Banking Committee Republicans aimed at facilitating capital formation may gain traction. The draft, referred to as JOBS Act 4.0, is intended to build on the success of the 2012 Jumpstart Our Business Startups (JOBS) Act.

The 2012 JOBS Act encouraged smaller companies called "emerging growth companies" (EGC) to go public and supported capital formation in the private market through deregulation. For example, the 2012 JOBS Act reduced the disclosure and compliance requirements for EGCs for up to five years after going public. It also permits smaller companies to submit confidential draft IPO registration statements and to "test the waters" with investors prior to the IPO roadshow.

In the private market, the 2012 JOBS Act lifted the ban on general solicitation under Rule 506 of Regulation D, increased the number of shareholders before a company is required to become a reporting company and created a crowdfunding exemption. While the 2012 JOBS Act encouraged private investments and the number of IPOs initially increased, proponents of the JOBS Act 4.0 believe further deregulation is needed. Below is an overview of some of the key JOBS Act 4.0 proposals.

The JOBS Act 4.0 wants to reduce disclosure burdens for reporting companies. One proposal suggests making quarterly reporting voluntary and only requiring Exchange Act reports on a semi-annual basis. Republicans advocate for reduced reporting obligations to encourage longer term thinking and reduce expenses. Counterarguments include the importance of keeping investors informed and the lower cost of capital for companies seeking to raise funds.

Less surprising proposals in the JOBS Act 4.0 include removing the requirements to disclose the ratio of the CEO's pay to the median company employee in proxy statements and removing requirements under the Exchange Act to disclose information related to conflict minerals, coal or mine safety and payments by resource extraction issuers. Both CEO pay ratio and conflict minerals disclosure requirements have been unpopular with companies. Some have argued pay ratio disclosures are misleading, costly, of limited utility because they are not comparable and do not encourage pay reform. Critics also argue conflict mineral disclosures are static and difficult to report.

Another proposal in JOBS Act 4.0 includes a provision to modify the definition of EGC, which was introduced in the 2012 JOBS Act, so that status as an EGC would expire up to 10, instead of five, years following a company's IPO. The proposed change would not eliminate the loss of EGC status before such date once a company: hits annual gross revenues of $1.07 billion; issues more than $1 billion in non-convertible debt over three years; or when it becomes a large accelerated filer. Extension of the time period during which a company will remain an EGC, with reduced reporting requirements, would reduce the disclosure burden on smaller companies, but is unlikely to encourage more companies to go public.

A number of additional proposals have been included to encourage capital formation. For example, the JOBS Act 4.0 includes language for the creation of venture exchanges to allow for the trading of: securities of early-stage growth companies exempt from registration under the small issues exemption; the securities of EGCs and securities registered under section 12(b) if the issuer is not a large accelerated filer; or if the average daily trade volume is below a certain threshold.

The proposed legislation also instructs the Securities and Exchange Commission ("SEC") to issue regulations to provide sufficient disclosures to investors, allows the SEC to limit transactions as appropriate and authorizes the SEC to create a Venture Exchanges Office. The proposal aims to allow small issuers to concentrate trading on one exchange.

An additional proposal is focused on adding a micro-offering exemption to exempt transactions that would assist small companies in raising capital. The proposal would include transactions involving the sale of securities where the aggregate amount sold by the issuer during the year preceding the transaction does not exceed $500,000 (subject to adjustment for inflation).


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