As the US House Passes Package of Bills to Open Capital Market Flow to Small Businesses, the Senate Prepares Similar Legislation

It’s been less than one week since US House passed a package of six bills that would open up capital flow to small businesses. Now, it is the Senate is preparing to introduce its own version of legislation to assist small businesses in raising capital. Both Republican and Democrat senators are expected to work together to push forward the bills package, which would ease up the restrictions of SEC regulations to attract investors and help out startups and small businesses.

The legislation, which made it through the House by a 390-23 vote, has President Barack Obama’s support. Called the Jumpstart Our Business Startups Act (H.R. 3606), the bills would allow crowdfunding (this involves raising capital from a bigger pool of small-scale investors that the Commission has not classified as “accredited.”), increase the shareholder reporting trigger for all community banks and companies, set up an initial public offering “on-ramp” for emerging growth companies, increase the Regulation A offering cap to $50 million, and eliminate the general solicitation ban.

The House also approved several amendments to the package. Among these was one that would up the shareholder threshold for all firms to $2,000. The original bill had only increased the threshold to 1,000. Per the amendment, only 500 shareholders under the 2,000 limit can be non-accredited. Another amendment mandates that the Securities and Exchange Commission conduct a study regarding whether it can enforce the Exchange Act’s Rule 12g5-1.

While the Senate’s small business capital legislation will likely have many similarities to the House’s version, with the Senate bill, the Export-Import Bank would be given new legislative authority. This independent agency helps US companies trying to make sales internationally with financing. Also, whereas the House legislation is comprised of six bills, the Senate’s small business legislation takes up just three of the bills and with modifications.

The first bill would set up a classification for new emerging growth companies that would phase in specific SEC regulations over five years. This should help lower the expenses of going public. Companies would be able to keep this status for this time period or until exceeding $1B in yearly gross revenue. Another bill increases the ceiling for how many shares a private company can sell during a public offering before being required to register with the SEC, from $5 million to $50 million. Meantime, the third bill calls for getting rid of SEC crowdfunding restrictions.

Additional investor protections are expected. Also, several other bills involving small businesses will likely be included.

Contact our securities fraud attorneys at Shepherd Smith Edwards and Kantas, LTD LLP today. Our investment fraud law firm represents institutional and individual clients.

House Clears Legislative Package To Ease Flow of Capital to Small Firms, Bloomberg/BNA, March 9, 2012

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