March 29, 2012
House Passes JOBS Act, Loosens SEC Restrictions
The House of Representatives overwhelmingly approved a measure on Tuesday designed to help small businesses and startups use the Internet to raise small amounts of funding from large numbers of investors.
Until now, the ability to use the Internet for financing has been limited.
The bill, known as the Jumpstart Our Business Startups Act (JOBS) Act, passed easily in a 380 to 41 vote with strong bipartisan support. It is now headed to President Obama for his expected signature.
Among other things, the legislation loosens various Securities and Exchange Commission (SEC) regulations, allowing small private companies to solicit up to $1 million in funding from unaccredited investors.
Supporters of the bill say such "crowdfunding" makes it easier for entrepreneurs to attract a broader base of investors. But critics say that bill would allow businesses to avoid disclosing critical financial data and evade government oversight, raising the risk of fraud and investor abuse.
The legislation allows small businesses to raise up to $50 million in shares through a public offering -- and to have as many as 1,000 shareholders, up from the current cap of 500 -- before having to register with the SEC.
The bill also gives an exemption to early-stage companies for their first five years on the public market from the compliance burdens of Sarbanes-Oxley (SOX) Section 404(b), which some studies estimate cost companies up to $2 million per year.
House Majority Leader Eric Cantor (R-VA) praised the passage of the measure, calling it “an increasingly rare legislative victory in Washington where both sides seized the opportunity to work together, improved the bill and passed it with strong bipartisan support.”
The Biotechnology Industry Organization (BIO) also expressed their support for the Act, saying it would “make the pathway to capital formation more attainable for small biotechnology companies, clearing the way for American innovation and ingenuity by removing bureaucratic hurdles and red tape to speed cures and medical breakthroughs to patients.”
“BIO applauds passage of the JOBS Act and all efforts to incentivize and encourage capital formation for growing companies working to develop breakthrough medicines and cures for devastating diseases. These reforms are especially important to innovative biotechnology companies that must spend investor dollars to address bureaucratic red tape and hurdles rather than the search for cures and breakthrough medicines,” said BIO President and CEO Jim Greenwood in a statement.
“This legislation incentivizes and encourages capital formation for small, emerging biotechnology companies, speeding the development of new cures and treatments for patients living with debilitating diseases such as cancer, diabetes, Parkinson´s, and HIV/AIDS.”
“In addition to the R&D hurdles that biotechnology companies face, there are day-to-day challenges of running a small business with the hopes of one day entering the public market. Of great import in the biotechnology industry is the constant struggle to find working capital.
“If burdens on public financing were removed, thereby leveling the playing field, private investors would have greater certainty that the companies they help take public will have the chance to succeed in the search for cures and breakthrough medicines. This confidence hopefully will lead to increased investments in promising science that could lead to treatments and cures for some of the most debilitating and life-threatening diseases."
House Republicans plan to vote next month on a bill that would provide a 20 percent tax cut to emerging growth companies. Meanwhile, Senate Democrats introduced a measure this week that would provide $26 billion in tax credits to smaller companies that either hire new employees or increase their number of workers.
On the Net:
- U.S. House of Representatives
- Securities and Exchange Commission (SEC)
- Biotechnology Industry Organization (BIO)