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SEC adopts slate of JOBS Act amendments

Joe Mont | April 14, 2017

The Securities and Exchange Commission has announced rule amendments that increase the amount of money companies may raise through crowdfunding to adjust for inflation. 

It also approved amendments that provide inflationary adjustments to a threshold used to determine eligibility for benefits offered to “emerging growth companies” under the Jumpstart Our Business Startups (JOBS) Act.

“Regular updates to the JOBS Act, as prescribed by Congress, ensure that the entrepreneurs and investors who benefit from crowdfunding will continue to do so,” Acting Chairman Michael S. Piwowar said in a statement. “Under these amendments, the JOBS Act can continue to create jobs and investment opportunities for the general public.”

Title I of the JOBS Act amended the Securities Act and the Exchange Act to provide several exemptions from a number of shareholder voting, disclosure and other regulatory requirements for an issuer that qualifies as an “emerging growth company.”

Specifically, the regulatory relief:

  • Permits an emerging growth (an issuer with less than$1billion in total annual gross revenues during its most recently completed fiscal year) to include only two years of audited financial statements in its common equity initial public offering registration statement.
  • Permits an EGC to provide Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosures that correspond to the financial statements included in its IPO registration statement.
  • Permits an EGC to omit in other Securities Act registration statements filed with the Commission selected financial data for any period prior to the earliest audited period included in its IPO registration statement.
  • Permits an EGC to omit selected financial data for any period prior to the earliest audited period included in its first registration statement that became effective under the Exchange Act or Securities Act in any Exchange Act registration statement, periodic report or other report filed with the Commission.
  • Exempts an EGC from the advisory shareholder votes on the compensation of its named executive officers (“say-on-pay”), the frequency of the say-on-pay votes (“say-on- frequency”), and golden parachute compensation arrangements with any named executive officers.
  • Permits an EGC to comply with executive compensation disclosure requirements under Item 402 of Regulation S-K by providing the same executive compensation disclosure as a smaller reporting company.
  • Permits an EGC to defer compliance with any new or revised financial accounting standards until the date that companies that are not “issuers” as defined in Section 2(a) of the Sarbanes-Oxley Act are required to comply.
  • Exempts an EGC from the Sarbanes-Oxley Act Section 404(b) auditor attestation on management’s assessment of its internal controls.

The SEC is required to make inflation adjustments to certain JOBS Act rules at least once every five years after it was enacted on April 5, 2012. 

In addition to the inflation adjustments, the SEC adopted technical amendments to conform several rules and forms to amendments made to the Securities Act of 1933 and the Securities Exchange Act of 1934 by Title I of the JOBS Act.

Section 101 of the JOBS Act added new Securities Act Section 2(a)(19) and Exchange Act Section 3(a)(80) to define the term “emerging growth company.” Pursuant to those sections, every five years the SEC is directed to index the annual gross revenue amount used to determine EGC status to inflation to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics.

To carry out this statutory directive, the SEC has adopted amendments to Securities Act Rule 405 and Exchange Act Rule 12b-2 to include a definition for EGC that reflects an inflation-adjusted annual gross revenue threshold. 

The JOBS Act also added new Securities Act Section 4(a)(6), which provides an exemption from the registration requirements of Section 5 under the Securities Act for certain crowdfunding transactions. In October 2015, the SEC promulgated Regulation Crowdfunding to implement that exemption. 

Sections 4(a)(6) and 4A of the Securities Act set forth dollar amounts used in connection with the crowdfunding exemption, and Section 4A(h)(1) states that such dollar amounts shall be adjusted by the SEC not less frequently than once every five years to reflect the change in the CPI-U published by the BLS. The SEC has adopted amendments to Rules 100 and 201(t) of Regulation Crowdfunding and Securities Act Form C to reflect the required inflation adjustments.

Also, Sections 102 and 103 of the JOBS Act amended the Securities Act and the Exchange Act to provide several exemptions from a number of disclosure, shareholder voting, and other regulatory requirements for any issuer that qualifies as an EGC.

The exemptions reduce the financial disclosures an EGC is required to provide in public offering registration statements and relieve an EGC from conducting advisory votes on executive compensation, as well as from a number of accounting and disclosure requirements. The regulatory relief provided under Sections 102 and 103 of the JOBS Act was self-executing and became effective once the JOBS Act was signed into law. The technical amendments that the SEC is adopting conform several rules and forms to reflect these JOBS Act statutory changes.

A breakdown of the changes, can be found here.