On January 14th, the House passed H.R. 37 “Promoting Job Creation and Reducing Small Business Burdens Act.” Although passed with some support from the Democrats (29 votes, which in these days of hyper-partisanship is practically a bipartisan bill), the White House issued a veto threat on January 12th because the bill also delays part of the Volker Rule effectiveness until July 21, 2019. Thus, in its current form, it looks dead on arrival, but there are some interesting ideas that I support and will hopefully make it in a revised bill later in the term:
- Delays the requirement for savings and loan holding companies to register under the Securities Exchange Act of 1934 to the same extent as bank holding companies (assets of $10 million and class of equity securities held of record by 2,000 or more persons). Also allows deregistration for savings and loan holding companies when they have fewer than 1200 shareholders of record. This seems fair and was likely an unintended distinction made when the JOBS Act passed. Unfortunately, this innocuous bill was grouped with the Volker delay.
- Provides for an exemption from the Securities Exchange Act of 1934 for certain business brokers. The bill provides for some restrictions such as a prohibition on the broker holding funds or securities or conducting a registered offering. The exemption would only apply to sales of businesses with less than $25 million EBITDA or $250 million of revenue. This would essentially legislate the no-action position issued by the Division of Trading and Markets in January 2014. It really never made any sense that a business broker could sell the assets of a small business, but may have been prohibited from selling the same business if structured as a stock sale. This would provide some necessary clarity, although the size of the business probably should be reduced further. This should be limited to aid the smallest businesses.
- Provides clarity to transitions for emerging growth companies. If an issuer is an EGC upon its initial filing, it would be able to remain an EGC through its IPO regardless of whether it ceased to be an EGC during the review period. This probably will not affect many issuers, but seems fair and I support it.
- Decreases from 21 to 15 the number of days before a “road show” that an EGC may publicly file a draft registration statement for confidential nonpublic review by the SEC. Again, probably not that big a deal. Sunshine is the best disinfectant though, and having the public and the press review an issuer’s filings probably would outweigh the benefits of having issuers get to the road show faster. Not sure that I support this provision.
- Attacks XBRL. The bill would exempt EGCs and all issuers with less than $250 million in gross revenues from having to comply with XBRL. It would further require the SEC to undertake a study of the benefits of XBRL. I completely support removing the XBRL requirement.
- Provides that issuers could file a one page summary Form 10-K if the summary cross references by electronic link to the material. Interesting idea. The Staff has mentioned the need to bring EDGAR into the 21st century, by possibly having some static information posted online. But to have everything posted online? I like the idea of reducing the amount of repetitive disclosure, but it seems that at least the most material information should be found in one place and filed with the SEC.
- Requires a study of Regulation S-K. Wait, haven’t we heard this one before? The Staff is already working on such a project.