Ever since its passage in 2012, the Jumpstart Our Business Startups Act or JOBS Act has been a buzzword in the startup community. The provisions, intended to help startups grow, ease the requirements that apply to companies raising seed and venture capital.
While requirements are eased by the JOBS Act, they are in no way eliminated, simply changed, so it’s important to still fully comply with securities law. At Priori Legal, we can connect you with a top securities lawyer who can ensure that your startup is in total compliance while taking advantage of these new regulations.
What is the JOBS Act?
The JOBS act was established as a bipartisan push from Congress to law encourage funding of small businesses in the United States. It did this by revising the requirements of raising capital for startups, easing various securities regulations that apply to small businesses, and creating a new way to raise capital through equity crowdfunding.
The JOBS Act includes a wide range of provisions, but the following five are the most important provisions that can affect startups:
- Equity-Based Crowdfunding. This allows average, non-accredited investors to invest in startups through approved portals for equity in early stage companies. The idea is that companies can crowdfund not just for early orders or generosity, but instead appeal as a real investment.
- Private Shareholders Cap Raised from 500 to 2,000. In the past, private companies with over 500 shareholders or $10 million in assets were often forced into going public due to higher regulatory burdens. This cap for changing regulation was raised to 2,000 shareholders, so that startups would not be forced to go public before they were ready.
- “Emerging Growth Companies.” A class of company known as an “emerging growth company” was created. These companies have under $1 billion in revenue and are thus are exempt from certain regulations associated with going public.
- Regulation A Limit Raised from $5 Million to $50 Million. Regulation A offerings of securities, which are known as “mini-public offerings” because they are similar to an IPO but with much fewer requirements as far as disclosures, shareholders reports, and other requirements go, were expanded. Now, under the new Regulation A+, companies can raise up to $50 million instead of the previous $5 million limit.
- General Solicitation in Regulation D Offerings. Regulation D offerings are securities offerings made by small companies that are not subject to expensive SEC registration if they are valued under $5 million dollars and are limited in their offerings. Under this provision, companies and their brokers are allowed to carry out “general solicitation,” which means that they can advertise the merits of their stock directly to the general public, although only accredited individuals can purchase it.
How the JOBS Act Impacts Startups
Most startups are concerned most with Title II and Title III provisions of the JOBS Act. These are those that reform access to capital and crowdfunding for equity respectively. Startups can take advantage of Title II provisions to raise capital without risking as much due to the lowered compliance-related expenses. Title III provisions are still being finalized by the SEC, but should be in effect by the end of 2015. When passed, they will allow startups to sell equity through crowdfunding platforms. As of yet, this is still not an option for startups due to delays in finalizing rules, but a securities lawyer should be able to advise you on any developments in this area and make you aware when crowdfunding investments for equity is a real option.
Depending on your needs, the cost of hiring a lawyer with crowdfunding experience can vary. Through Priori, the hourly rates for such lawyers typically start around $175 per hour and range up to $450 per hour. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and free price quote from one of our lawyers.
Can my company start offering equity through crowdfunding?
Not yet. The SEC is still finalizing the rules that will apply to raising this type of capital, and no exchanges have specifically been approved to operate thus far.