The Jumpstart Our Business Startups (JOBS) Act: Law Explained

Readers likely agree that deciphering complex financial regulations can be challenging for entrepreneurs and small business owners.

You'll learn the genesis of the law, its bipartisan political backing, the benefits it aimed to provide to startups and small businesses, and how well it has achieved those goals since being passed.

Introduction to the Jumpstart Our Business Startups (JOBS) Act

The Jumpstart Our Business Startups (JOBS) Act was signed into law in 2012 as a bipartisan effort led by President Barack Obama. The legislation aimed to ease securities regulations and help small businesses access capital markets more easily in the wake of the 2008 financial crisis.

The Genesis of the JOBS Act: Post-Financial Crisis Solutions

The 2008 financial crisis had severely impacted small businesses and startups, limiting their access to funding and capital. To address this, Congress crafted the JOBS Act with the goal of making it easier for small and emerging growth companies to raise money through securities offerings. This aimed to boost job creation and economic growth.

JOBS Act Summary: Empowering Entrepreneurs and Investors

The JOBS Act introduced several changes to security regulations and laws to support capital formation for small businesses. Key features included:

Expanding exemptions for crowdfunding offerings
Increasing the number of shareholders private companies could have before public reporting
Creating a new category of "emerging growth companies" with reduced disclosure requirements
Allowing companies to test markets and gauge interest before IPOs
Reducing barriers for small businesses accessing public markets

This provided more investment opportunities for retail investors while empowering entrepreneurs.

Deciphering the Full Text of the JOBS Act

The full JOBS Act legislation amended several existing laws related to financial regulation in the US, including:

Securities Act of 1933: Updated rules for IPOs and securities offerings
Securities Exchange Act of 1934: Changes to regulations for emerging growth companies
Investment Company Act of 1940: Expanded exemptions for crowdfunding

It also directed the SEC to revise rules on equity crowdfunding and small business capital formation.

What is the purpose of the Jumpstart Our Business Start Act?

The Jumpstart Our Business Startups (JOBS) Act was signed into law in 2012 with the main goal of encouraging funding for small businesses and startups in the United States. This bipartisan law aimed to help entrepreneurs and small business owners access capital more easily by easing certain securities regulations.

Specifically, the JOBS Act had a few key objectives:

Expand access to capital markets and funding sources for small and emerging growth companies looking to go public
Reduce regulatory burdens and costs for smaller companies accessing public capital markets
Increase the maximum fundraising cap for companies using equity crowdfunding exemptions
Allow general solicitation and advertising for certain private placement offerings under Regulation D
Create an IPO on-ramp for emerging growth companies through scaled disclosure and compliance requirements

By loosening securities regulations, lawmakers hoped the JOBS Act would spur business growth and job creation by making it simpler and more affordable for small businesses and startups to raise money from investors. This was seen as crucial for supporting entrepreneurship and innovation coming out of the 2008 financial crisis.

In summary, the overarching goal was to remove barriers to capital formation while maintaining appropriate investor protections. The JOBS Act aimed to strike this balance through targeted exemptions and scaled regulations based on company size and fundraising methods.

What are the stated goals of the Jumpstart Our Business Startups JOBS Act of 2012?

The Jumpstart Our Business Startups (JOBS) Act was signed into law in 2012 with several key goals:

Promote capital formation and support startups and small businesses by easing securities regulations on fundraising. This allows businesses to raise funds more easily through securities offerings and crowdfunding platforms.
Help businesses access public capital markets by reducing regulatory requirements and costs for emerging growth companies going through the IPO process. This makes it easier for companies to go public.
Increase the number of shareholders private companies can have before being required to publicly disclose financial information from 500 to 2000. This reduces reporting burdens.
Legalize equity crowdfunding so startups and small businesses can offer and sell securities through crowdfunding platforms. This provides new sources of capital.
Loosen restrictions and reporting requirements on small public offerings under Regulation A from $5 million to $50 million. This assists capital formation.

In summary, the main goals were facilitating capital formation for startups and small businesses, reducing regulatory burdens for emerging growth companies, legalizing equity crowdfunding, and supporting job creation after the 2008 financial crisis. The bipartisan act aimed to stimulate business growth and innovation.

What did the JOBS Act do?

The Jumpstart Our Business Startups (JOBS) Act was signed into law in 2012 with bipartisan support. The main goals of the Act were to:

Help small businesses and startups access capital more easily by reducing regulatory burdens on smaller offerings. This included expanding exemptions for crowdfunding.
Allow companies more time before they are required to comply with certain public company regulations.
Make it easier for small or early-stage companies to go public by creating a new category called "Emerging Growth Companies." These companies get temporary relief from certain disclosure and auditing requirements when going through the IPO process.
Direct the SEC to revise rules around securities-based crowdfunding to help small businesses raise up to $50 million from non-accredited investors through crowdfunding platforms while still protecting investors. This became Regulation Crowdfunding or Reg CF.

Overall, the JOBS Act aimed to spur business growth and job creation by improving access to capital for entrepreneurs and small businesses. It received strong bipartisan support in Congress as well as the backing of President Obama, who signed it into law. The Act required the SEC to revise many rules, leading to new regulations like Reg CF that opened up securities crowdfunding to non-accredited investors for the first time while adding investor protections.

What is an emerging growth company as defined in the Jumpstart Our Business Starting Act of 2012?

An emerging growth company (EGC) is a category of company created under the Jumpstart Our Business Startups (JOBS) Act of 2012. To qualify as an EGC, a company must have annual gross revenues of less than $1.235 billion during its most recent fiscal year. This revenue threshold was initially set at $1 billion when the JOBS Act was passed in 2012, but it has since been adjusted for inflation twice - first to $1.07 billion in April 2017 and then to the current $1.235 billion level in September 2022.

The EGC designation provides certain exemptions for qualifying companies when it comes to regulatory compliance and reporting requirements after an initial public offering (IPO). This can help reduce the regulatory costs and burdens for EGCs in their early stages as public companies. According to the JOBS Act, a company retains its EGC status until the earliest of:

The last day of the fiscal year in which the company earns $1.235 billion or more in annual revenue
The date when the company qualifies as a "large accelerated filer", with a public float of $700 million or more
The last day of the fiscal year ending after the fifth anniversary of the company's IPO
The date on which the company has issued more than $1 billion in non-convertible debt in the past three years

So in summary, an EGC is a special category for companies going public that meet certain revenue and other thresholds, providing them temporary exemptions from certain disclosure requirements and compliance costs associated with being a public company. This aims to make it easier for small, high-growth startups to access public markets for raising investment capital to grow their businesses.

Title I - The Emergence of Emerging Growth Companies

The Jumpstart Our Business Startups (JOBS) Act, passed in 2012, established a new category of issuers called Emerging Growth Companies (EGCs). EGCs are provided regulatory relief under securities laws to help encourage capital formation and job creation.

Criteria for Emerging Growth Company Status

To qualify as an EGC, a company must meet the following criteria:

Annual gross revenue less than $1 billion (adjusted for inflation every 5 years)
Has not issued more than $1 billion in nonconvertible debt over the past 3 years
First registered equity securities sale was within the past 5 years
Does not qualify as a large accelerated filer

EGC status lasts for up to 5 years after the first registered equity offering or until revenue exceeds $1 billion.

IPO On-Ramp: Simplifying the Path to Public Markets

The JOBS Act aims to simplify the IPO process for EGCs by exempting them from certain Sarbanes-Oxley (SOX) compliance requirements for up to 5 years. Key exemptions include:

Exemption from say-on-pay, compensation committee, and pay ratio disclosure requirements
Exemption from auditor attestation of internal financial reporting controls
Option to provide scaled executive compensation disclosures

These exemptions reduce regulatory burdens for EGCs undertaking an IPO, allowing them to focus more on long-term growth.

The Impact of EGC Designation on Capital Raising

Research suggests EGC status has had a measurable impact on capital formation. One study found EGCs raise more capital and undertake more analyst coverage and M&A activity versus similarly sized non-EGC IPOs. The scaled disclosure and compliance requirements appear to incentivize companies to access public markets sooner.

Overall the emergence of EGCs under the JOBS Act has succeeded in promoting IPO activity for growth-oriented companies in the 5+ years since it was passed. The structuring of disclosure and regulatory relief helps striking an appropriate balance between investor protection and capital formation.

Title II - Expanding Access to Capital for Small Businesses

Title II of the JOBS Act aimed to expand access to capital for small businesses and startups by revising existing securities regulations.

The Revision of Regulation A and Rule 506

Regulation A offerings allow small businesses to raise up to $50 million from public investors without registering with the SEC. The JOBS Act increased the fundraising limit from $5 million to $50 million.

Rule 506 private placements allow companies to raise an unlimited amount from accredited investors without SEC registration. The JOBS Act removed the prohibition on general solicitation and advertising for Rule 506 offerings, making it easier for companies to find accredited investors.

These changes enabled startups and small businesses to tap into new sources of funding to grow their operations.

The Role of the Securities and Exchange Commission (SEC)

The SEC plays a key role in implementing Title II provisions:

Issuing new rules and guidance for Regulation A+ and Rule 506 offerings
Reviewing Regulation A offering statements
Overseeing issuer compliance and investor protection
Monitoring capital markets and recommending further regulation if needed

The SEC focuses on balancing capital formation with appropriate investor safeguards.

The Impact of Title II on Capital Formation

Title II has succeeded in increasing access to growth capital for small businesses:

Over $3 billion raised through Regulation A+ as of 2020
Rule 506 remains the most widely used capital formation exemption

However, companies still face challenges reaching investors and navigating complex regulations. Regulatory costs and compliance burdens remain barriers, especially for first-time issuers.

Overall, Title II made incremental but meaningful progress in improving small business funding options. Further policy changes may be needed to simplify and streamline capital raising.

Title III: Democratizing Investment through Crowdfunding

This section delves into Title III of the JOBS Act, which introduced a legal framework for equity crowdfunding, allowing broader participation in startup funding.

Establishing the Foundation for Equity Crowdfunding

Regulation Crowdfunding (Regulation CF) created new opportunities for startups to raise funds from the public by easing securities regulations. It allows companies to raise up to $1.07 million in a 12-month period from retail investors. Companies utilizing Regulation CF must register with the SEC and provide regular disclosures. This aims to protect investors while expanding access to capital for entrepreneurs.

Key aspects of Regulation CF include:

Allowing startups to publicly advertise and raise funds through online platforms. This democratizes access to early-stage investments.
Creating an exemption from full SEC registration for offerings under $1.07 million in a 12-month period. This reduces compliance costs for startups.
Requiring regular disclosures by the company about its business, financials, risks, etc. This ensures transparency for investors.
Limiting individual investments based on income and net worth to protect retail investors.

So in summary, Regulation CF laid the foundation for equity crowdfunding while balancing investor protections.

Navigating the JOBS Act Crowdfunding Provisions

The JOBS Act puts some key limitations in place around equity crowdfunding:

Companies can only raise up to $1.07 million in a 12 month period from retail investors. This caps potential losses for individuals.
Individual investments are limited based on income and net worth. Those with lower net worth can invest less to limit risks.
Companies must disclose details around the business, its financials, executive compensation, risks involved, etc. This ensures transparency.
Transactions must happen through SEC-registered platforms that ensure compliance and investor verification. This prevents fraud.

So while opening up startup investing to more individuals, the JOBS Act also prioritized investor protections through limits and disclosures. This aimed to encourage responsible equity crowdfunding.

Analyzing the Crowdfunding Exemption Movement

The push for equity crowdfunding exemptions emerged after the 2008 financial crisis when startups faced limited access to capital from traditional sources. This grassroots "crowdfunding exemption movement" led by entrepreneurs and small investors argued that securities regulations were too restrictive.

Proponents contended that:

Startup investing should not be exclusive to wealthy accredited investors. This locks out good ideas without connections or resources.
Technology now allows efficient flow of information for investor protections beyond what's required by pre-internet era laws.
New capital sources are essential for creating jobs coming out of a recession, especially from startups.

This bottom-up pressure from stakeholders combined with bipartisan Congressional support ultimately shaped Title III's crowdfunding provisions in the JOBS Act. The law aimed to balance wider access to capital while ensuring investor protections are in place.

Title IV: Enhancing Small Company Capital Formation

Title IV of the JOBS Act aims to improve access to capital for emerging growth companies and small businesses by modernizing certain SEC regulations.

Modernizing Regulation A for Broader Access to Funding

The JOBS Act updates Regulation A to "Regulation A+," allowing companies to raise up to $50 million annually through public offerings without registering with the SEC. Key updates include:

Raising the fundraising limit from $5 million to $50 million annually
Requiring fewer disclosures compared to full SEC registration
Allowing solicitation of public investors through advertising
Requiring SEC qualification and approval before fundraising

By reducing regulatory burdens, Regulation A+ makes it easier for small businesses to access public capital markets. This supports business growth and job creation.

Evaluating the Effectiveness of Title IV Provisions

Since the JOBS Act's passage, Title IV appears to have positively impacted capital formation for smaller companies:

Over $2.6 billion raised through Regulation A+ offerings from 2015-2020
447 Regulation A+ offerings qualified by SEC from 2015-2020
Most Regulation A+ issuers are small businesses raising under $20 million

However, some note Regulation A+ adoption remains below expectations. Further reforms around reporting requirements and investor protections may encourage greater usage of Regulation A+ by businesses.

The Intersection of Title IV and Public Companies

Title IV also eases IPO requirements for emerging growth companies (EGCs) under the Securities Act of 1933. Key provisions include:

Allowing confidential SEC submissions of IPO registration statements
Reducing the timeframe for SEC review of IPO filings
Exempting EGCs from certain financial reporting/disclosure rules

This gives EGCs more flexibility and privacy around the IPO process. However, critics argue relaxed standards may expose public investors to higher investment risks.

Overall Title IV appears moderately successful in improving small business capital access, but further tweaks to Regulation A+ and emerging growth company rules may optimize effectiveness.

The Legislative Journey and Bipartisan Support

The Path from Proposal to Law: Congressional Dynamics

The JOBS Act began as a series of legislative proposals aimed at easing securities regulations to help small businesses access capital markets. Key proponents included Rep. Stephen Fincher and Sen. Pat Toomey, who introduced various bills that would later comprise the JOBS Act.

After multiple committee hearings and markups, the proposals gained momentum in Congress. The House Financial Services Committee advanced H.R. 2930, the Entrepreneur Access to Capital Act in November 2011. The Senate Banking Committee approved the Democratizing Access to Capital Act in January 2012.

With bipartisan support, Congress moved swiftly to craft a final bill merging the key provisions of earlier proposals. The final version passed the House with a 390-23 vote and the Senate with a 73-26 vote in March 2012. This overwhelming approval reflected unity around the goal of economic recovery through small business growth.

Bipartisan Backing: Uniting for Small Business Growth

The JOBS Act represented a rare bipartisan victory in a gridlocked Congress. While Democrats and Republicans clashed on many issues, they found common ground on the urgent need to help small businesses drive economic growth after the 2008 financial crisis.

Both parties acknowledged that excessive regulations were blocking startups and small firms from raising affordable capital they needed to expand and create jobs. There was clear consensus on leveraging securities laws to nurture innovation and entrepreneurship.

This shared priority overrode partisan divisions, allowing quick passage of the JOBS Act. It signified unity on the fundamental role of small businesses in restoring America's economic strength.

Presidential Endorsement: Barack Obama's Role

President Barack Obama staunchly supported the JOBS Act, calling it a "game changer" for startups and small businesses. His endorsement played a key role in rallying congressional support.

By signing the JOBS Act into law in April 2012, Obama cemented his administration's commitment to enabling entrepreneurs and small firms to access capital more efficiently. It marked a milestone in the government's multi-pronged response to the 2008 financial crisis.

Positioning himself as an advocate for American innovation and competitiveness, Obama continues to champion the JOBS Act's role in expanding economic opportunity nationwide. Its passage reflects his broader agenda to streamline financial regulation to empower job creators.

Evaluating the JOBS Act: Successes and Shortcomings

The Jumpstart Our Business Startups (JOBS) Act was signed into law in 2012 with the goal of making it easier for small businesses and startups to access capital and spur job creation after the 2008 financial crisis. As we approach the 10-year anniversary of the Act, it is worth evaluating its overall impact and effectiveness.

The JOBS Act's Influence on U.S. Capital Markets

The JOBS Act has enabled startups and small businesses to raise over $500 billion through various securities exemptions and crowdfunding provisions. This influx of capital has boosted business formation and supported job growth.
There has been an upward trend in U.S. IPO activity since 2012. In 2021, over 1,000 companies went public, the most active IPO market since 2000. The Act's reforms around emerging growth companies have made the IPO process more feasible for startups.
Venture capital funding has surged since 2012, from $25 billion to over $130 billion in 2020. The Act's lifting of solicitation bans has opened up new channels for investors to connect with startups.

Assessing the JOBS Act in the Context of Job Creation

Research on the link between the JOBS Act and job creation shows mixed results. Some studies suggest minimal impacts on employment, while others show more significant effects.
Challenges remain around effectively tracking which jobs are created due to the Act's provisions across different companies and sectors. Granular data on exact hiring numbers is difficult to quantify.
There are concerns that the JOBS Act's support for startups has not translated to quality job creation, with many funded companies remaining small or failing to scale sustainably.

The Future of Financial Regulation: Learning from the JOBS Act

Aspects of the Dodd-Frank Act may require reform to align with the JOBS Act's goal of supporting business capital formation while protecting investors. There are opportunities to strike a better balance.
The JOBS Act provides a framework for bipartisan collaboration on financial regulation reform between policymakers. Future regulations can apply these lessons around compromise and evidence-based policymaking.
The SEC plays an important oversight role in ensuring capital market transparency and efficiency under the JOBS Act. Their rulemaking processes provide learnings for developing balanced regulations.

Conclusion: The Legacy of the JOBS Act

Recap of the JOBS Act's Key Contributions to Business and Finance

The JOBS Act introduced several major changes aimed at facilitating capital formation and business growth. Key contributions include:

Legalizing equity crowdfunding to enable startups and small businesses to raise funds from non-accredited investors. This expanded access to capital for entrepreneurs.
Introducing an IPO on-ramp for emerging growth companies through relaxed disclosure and compliance rules. This made going public easier for new companies.
Increasing the fundraising limits for Regulation A+ offerings, allowing companies to raise up to $50 million from the public markets. This expanded investment opportunities.
Clarifying rules around general solicitation for private offerings under Rule 506 to make capital more accessible.

The Future Landscape for Startups and Investors

The reforms initiated by the JOBS Act will have longstanding effects on the environments for both startups seeking funding and investors seeking opportunities. We can expect to see further growth in:

Equity crowdfunding platforms connecting startups and investors directly.
Public listings of emerging growth companies that may have otherwise stayed private longer.
More investment opportunities for non-accredited investors through Reg A+ offerings.

Overall, the future looks brighter for startups and investors alike thanks to increased access to capital.

Final Thoughts on the JOBS Act's Role in Economic Recovery

The JOBS Act aimed to spur business, innovation, and job creation in the wake of 2008's financial crisis. By loosening securities regulations, it sought to provide startups and small businesses with easier access to the capital they need to grow.

Early data suggests some success on these fronts. However, the full economic impacts are still materializing. What does seem clear is that the JOBS Act has opened new doors for entrepreneurs and investors alike. Its legacy will likely depend on whether that momentum can be sustained going forward.