However, more than a year later, significant portions of the law face a delayed start, awaiting implementation from the U.S. Securities and Exchange Commission (SEC).
The JOBS Act was enacted to stimulate small company growth by making access to investment capital more simplified through relaxed reporting requirements, allowing more companies to seek public financing and providing access to a larger pool of potential investors.
One of the headline changes of the JOBS Act that may fundamentally alter the role of small business are the new laws affecting crowdfunding.
Crowdfunding is used to fund a particular venture through raising small amounts of capital from many investors. However, until the SEC implements rules (the chairman of the SEC recently hinted at the fall), crowdfunding is only allowed in limited circumstances.
Those circumstances include contributions for the purpose of pre-ordering goods or services, contributions in exchange for modest employment or recognition or pure donations.
Once implemented, a non-public company can sell up to $1 million in securities in any rolling 12-month period using general solicitation or through Internet offerings.
Investors are limited to a maximum investment of either $2,000 or 5 percent of the investor's income or net worth, whichever is greater, or 10 percent of the investor's annual income or net worth if their annual income exceeds $100,000.
Crowdfunding will aid small businesses in raising capital, but may leave unsophisticated investors more vulnerable to fraud. Fraud remains a major concern, especially for online offerings, because funding platforms have been used for purposes of money laundering and staging fraudulent projects.
The U.S. Senate attempted to combat the fraud potential that may accompany crowdfunding by requiring issuers to use intermediaries registered with the SEC as brokers or funding portals. Intermediaries are required to provide information to investors to reduce the risk of fraud and ensure that investors and issuers satisfy all requirements set forth by the SEC.
Intermediaries must ensure that each investor reviews investor education materials and must affirm investors understand the risk of loss and the types of risks applicable to startup companies.
Intermediaries must also ensure that all offering proceeds are only provided to the issuer when the aggregate capital raised from all investors is equal to or greater than a target offering amount, and allow investors to cancel their commitments to invest.
Another significant change under the JOBS Act involves the ban on general solicitation and advertising in connection with certain private offerings.
Recent regulations adopted by the SEC make these changes effective Sept. 23. Under this new law, general solicitation and advertising, including Internet offerings, will be permitted provided that all investors are accredited or qualified institutional buyers under Regulation D standards.
Regulation D has long been the most relied upon method for non-public companies to sell securities to investors. However, sellers typically relied upon "friends and family" for leads to possible investors. Now by having access to the Internet and other forms of advertising, the theory is that access to capital will become easier.
The new rule requires issuers to take reasonable steps to ensure the purchasers are accredited investors under Regulation D, either because they qualify within one of the enumerated categories, or the issuer reasonably believes they qualify at the time of sale.
The JOBS Act also amends the rarely used Regulation A which allows companies to raise significant capital without filing a full public offering registration. Once Regulation A is implemented, it will increase the amount of capital that can be raised to $50 million in securities within a 12-month period, without registration. Securities offered or sold will be "covered securities" and will not be subject to state securities laws as long as the securities are sold on a national securities exchange or only to qualified purchasers. Companies will be required to file electronically with the SEC and distribute to prospective investors an offering statement and any related documents, including a description of the issuers business and financial condition and intended uses for proceeds.
Emerging growth companies
Finally, the JOBS Act delivers a new category of publicly held company named Emerging Growth Companies (EGC).
The EGC classification provides companies with certain exemptions pertaining to initial registration requirements and subsequent reporting requirements with the SEC, where the issuers' gross revenues are less than $1 billion during the recently completed fiscal year.
EGCs have new accounting standards, and only have to submit two years of financial statements and selected financial data. EGCs will be provided with confidential review of draft registration statements, delaying exposure of sensitive competitive information.
Critics of the JOBS Act claim it invites fraud and reduces protection for investors for small and large companies; however, President Obama describes the JOBS Act as a "game changer." Since the JOBS Act is not yet fully implemented, how much the game will change remains unknown.
The Jumpstart Our Business Startups Act ("JOBS Act") was signed into law by President Barack Obama on April 5.