The Jobs Bill: Everything you Wanted to Know and Then Some!
This article by Frank Prante, Director of the Small Business Development Center, provides many important details pertaining to the recent JOBS Bill legislation and how it creates new opportunities for start-up companies to raise equity capital.
Job Act Bill: Exemption 506 for promoting your stock
The jobs bill act was signed into law April 5, 2012; in addition to simplifying public registration, it provides two avenues to promote the ability of small businesses to raise funds. Guidelines for who can file under SEC exemption 506:
a) Emerging Growth Companies, which is a business with revenues $0 - under 1 billion.
b) The EGC has less than $700 million in publicly traded shares.
c) An EGC only has a window of 5 years from the sale of its first security to remain an EGC
d) Who have not sold securities before Dec 8 2011
e) Under modified Rule 506 must have less than 2000 investors, and less than 500 unaccredited (excludes employee stock benefits)
1. Sales to Accredited Investors: Within 90 days from the date above, the SEC must remove prohibition on general solicitation in Rule 506 private placements, provided that all the investors are accredited. You cannot do this, however, until the SEC has released their guidelines. Then, you must follow those guidelines. An accredited investor is defined as having 1 million in assets above their primary home value or they earn at least $200,000 (single) or $300,000 (married) in each of the last two years, and expect the same the next year. There is no limit to how much each of your Accredited Investors can invest. In contrast to the new offering options under crowdfunding, these offerings must comply with state securities laws, unless such securities are offered or sold on a national securities exchange or sold only to qualified purchasers. There are no informational requirements for accredited purchasers. However, Private companies utilizing this new exemption will need to annually file audited financial statements and such other periodic disclosures as the SEC determines. This provision will require SEC rulemaking in order to become operative.
There is an Increase in amount you can raise: Regulation A is increased from $5 million to $50 million that can be raised without registering with the SEC in any given 12 month period. However, there may be disclosure requirements.
Under SEC guidelines Rule 506, Form D, must be filed 21 days before promoting the stock. You should contact an attorney - but try to do most of the work yourself, if money is a problem. But be sure to have an attorney approve what you are doing.
2. Sales to The General Public: You can promote your business to anyone, through crowdfunding. No later than 1 year after the date of enactment the SEC shall issue final regulations on crowdfunding. Prior to this legislation, Crowdfunding has been a form of capital raising where groups of people pool money and other resources to achieve a goal, including to fund a small business. There was a prohibition on general solicitation and the requirements that if you had over 500 equity holders and 10 million in assets, you had to register with the SEC.
a) Under the new rules for crowdfunding the following applies:
1) Must provide disclosure to SEC and investors 21 days prior to accepting any funds.
2) Funds are not released until a set target is reached.
3) Allow you to advertise your securities through approved funding portals
4) The crowdfunding Exemption cannot exceed 1 million in any 12 month period
5) Transaction must be conducted through a registered broker-dealer or funding portal.
b) Crowdfunding Portals: You cannot promote to business on your own, if you are using crowdfunding. It must be through an approved portal. A funding portal must be registered with the SEC and a member of a national securities exchange. Crowdfunder and Wefunder (for startups) are focusing on the jobs bill. Others that may become involved include Crowdtilt, Angellist, Indiegogo. Another is Microventure, which currently is only for accredited investors.
c) A funding portal offering crowdfunding securities cannot
1) Provide investment advice or recommend stock
2) Solicit purchases, sales, or offers to buy securities that it lists
3) Compensate anyone for solicitation
4) Handle investor funds or securities
5) Have directors, officers, or partners have a financial interest in the company
d) Investment Limits for Crowdfunding
1) 5% of net worth or annual income (or $2,000, whichever is more) for individuals whose annual income is under $100,000.
2) 10% of net worth or annual income for those over $100,000 (they also cannot invest over $100,000)
3) Equity in a principal residence is excluded from net worth calculations.
e) For Crowdfunding, the issuer must make the following mandatory disclosures to the SEC, Investors, and Intermediary:
1) Identifying information about the issuer, including its website
2) The names of officers, directors and 20% shareholders.
3) A description of the business and the anticipated business plan
4) A description of the financial condition of the issuer
i. offerings of $100,000 or less, The income tax return for the last completed
year and financial statements certified by the principal executive officer to be
true and correct.
ii. the names of officers, directors and 20% shareholders
iii. a description of the business and the anticipated business plan
iv offerings of $100,001 to $499,999 must have financial statements reviewed
by independent public accountant
v. over $500,000 financial statements must be audited by an independent
5) The intended use of the proceeds
6) The target offering amount, the deadline to meet the target offering amount, and
regular updates regarding the progress of the issuer toward the target.
7) The price or the method of determining the price
8) Detailed information about the capital structure of the issuer, the securities being
offered, and the risks associated with those securities.
9) How the securities offered are being valued, and how they might be valued in the
future in connection with a corporate transaction.
f) The issuer may not compensate finders except in accordance with SEC rules that will ensure the recipient clearly discloses such compensation.
g) The issuer must file annual reports of results of operations and financial statements with the SEC and provide the same to investors.
h) No resale's are permitted for one year except to the issuer, an accredited investor, a member of the investor's family or pursuant to a registered offering
i) Exemption is available only to US issuers
j) The issuer and its directors, partners, executive officer, financial officer and principal accounting officer will be liable to investors for any material omissions or misstatements unless they can show they did not know, and could not have known, of such untruth or omission.
k) Estimated costs for legal fees in preparing to do crowdfunding is $10,000 - $15,000.
l) No State can limit the exemption under the Job Act Law.
If you have questions on the Law, call an attorney. If you want help with developing disclosure information, such as a business plan, call us. However, regardless of what we can help you with, you will need an attorney to approve what you are doing. 435-797-2277