March 2012

Rapidly moving legislation dubbed the Jumpstart Our Business Startups Act (JOBS Act) was passed today by the U.S. Senate, which fundamentally alters the securities laws.  The business world is buzzing about the pros and cons of this Act.  The Act is designed to invigorate the IPO market by removing restrictions on capital raising that many of the detractors of the Act believe are important for investor protection.  The JOBS Act:

Permits “crowd funding” (raising capital in small amounts from many people usually via the Internet to finance a start up);

  • Eliminates the ban on public solicitation of investors by companies seeking financing in a private offering;
  • Raises the offering ceiling for so called “Regulation A Offerings” from $5 million to $50 million;
  • Raises the threshold for required registration as a public company from 500 to 2,000 shareholders (1,500 of whom must be “accredited investors” under the Regulation D standard);
  • Raises the threshold for required registration as a public company for community banks from 500 to 2,000
  • Creates a new category of securities issuer called an “emerging growth company,” defined as companies with annual gross revenues of less than $1 billion.; and
  • Provides for a “securities on-ramp” to phase in costly SEC reporting and compliance requirements such as internal controls audits, Say-On-Pay votes, etc over a five-year period for “emerging growth companies”.

The JOBS Act was passed in the House by a wide, bipartisan margin (390 to 23) on March 8th, and by the Senate by a narrower, but bipartisan margin (73 to 26) today.  Because the Senate adopted the House version with a slight amendment, the bill will be sent back to the House to be reconciled.  We expect the JOBS Act to be signed by President Obama by the end of the month.

Recent comments from SEC commissioner Luis Aguilar indicate that the SEC may consider new rules that would require public companies to disclose political expenditures. In his recent speech from February 24, 2012, Commissioner Aguilar informally called on the SEC to adopt political spending disclosure rules in light of the landmark U.S. Supreme Court Case, Citizens United v. Federal Election Commission, which struck down federal restrictions on corporate political spending as unconstitutional. Although public companies are still restricted from directly contributing corporate funds to political candidates, they are permitted to contribute funds for campaign advertisements that support or oppose political candidates. Additionally, companies may contribute to independent organizations that engage in political advertising or lobbying.

We previously blogged about a petition which was submitted by a group of ten law professors in response to the Supreme Court’s opinion in Citizens United asking the SEC to consider adopting rules that would require public companies to make disclosures about their political contributions. The petition was prompted by, among other things, the Court’s assertion that procedures of corporate democracy would be a means by which shareholders could monitor the use of corporate assets for political purposes and also effect corporate change where such political purposes were inconsistent with shareholder interests. As the petitioners pointed out, the Court’s reasoning is partially based on the assumption that shareholders have access to information concerning a company’s political spending. While certain companies voluntarily make political spending disclosures in their public filings with the SEC, there are currently no rules or regulations that require a company to make such disclosures. Continue Reading Are more disclosure requirements for public companies in the works?