On April 5, 2012, President Barack Obama signed the Jumpstart Our Business Startups Act (JOBS Act) into law. The JOBS Act was intended to increase the ability of small businesses to raise capital.
The legislation makes several changes to existing laws for small businesses. It enlarges the time from two to five years for certain small companies to begin compliance with some regulations, including provisions of the Sarbanes-Oxley Act. It allows certain small businesses to have more shareholders before registering with the SEC and becoming a public company. It also creates a new exemption from public filings with the SEC, and gives wider latitude to “emerging growth companies.”
The JOBS Act makes direct mention of “crowdfunding.” Crowdfunding refers to the funding of a company by selling small amounts of equity to many investors. Title III of the JOBS Act amends Section 4 of the Securities Act to allow “crowdfunding” by exempting issuers from the requirements of Section 5 of the Securities Act when they offer and sell up to $1 million in securities, provided that individual investments do not exceed certain thresholds and the issuer satisfies other conditions in the JOBS Act. The SEC has been tasked with developing regulations for crowdfunding; these are being developed and implemented. Until the regulations are implemented, however, the SEC cautions that “any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws.”
Chapter 26 of The Practitioner’s Guide to Colorado Business Organizations discusses the JOBS Act and other securities issues for small businesses.