JOBS Act expected to open up access to capital for small businesses.
Supporters of the newly enacted Jumpstart Our Business Startups (JOBS) Act say it contains provisions that make it easier for smaller companies to gain access to financing through the public markets, which will help more companies expand, generate jobs and stimulate economic growth. In fact, the legislation does make it simpler to engage in crowd funding or to conduct a Rule 506 Regulation D private placement offering – but the process shouldn’t be entered into lightly.
‘It would appear the JOBS Act is going to allow companies to go public more easily, which in a lot of ways is very good, but in other ways we just don’t know yet whether those companies are ready to go public from a disclosure standpoint, in terms of transparency and having the right adviser,’ points out Aon managing principal Brian Wanat.
Wanat acknowledges that it is too soon to tell what will really happen if capital markets are made more accessible to smaller firms, but he says the situation should be monitored. ‘It’s way too early, but there could be situations where companies are not ready to go public but do so anyway because they have this window of opportunity,’ he explains.
Jonathan Guest, partner at law firm McCarter & English, says there are some safeguards in the act that indicate the government is trying to strike ‘a balancing act between trying to make raising capital easier and protecting investors’.
Guest says that when the SEC issues further rules explaining how companies will have to ensure all new investors are accredited, much of the concern over fraud should subside. Until then, he suggests that this might be a good time for companies that were considering going public to take another look.
‘If a company is thinking about undertaking a public offering and really wants to have the advantages of being a publicly traded company, the JOBS Act provides a way to do this that – in effect – allows you to ramp up the corporate compliance in the early years as a public company,’ he explains.
For example, companies can now file their initial public offering documents confidentially with the SEC – previously those documents were filed electronically and made public on the SEC website. That confidentiality allows a young company to make efforts to comply with SEC rules without fear it will be hurt by news it did something wrong in the process or had to withdraw the offer. ‘A company could undertake a public offering and go through with it if it is successful, or stop and not have the pubic be aware,’ says Guest.
Executives at smaller companies who may be thinking of taking advantage of the JOBS Act should carefully consider what they are getting themselves into. They will be subject to much more regulatory scrutiny, so they must ensure they have a team on board, including a talented corporate secretary and general counsel, to file all the necessary paperwork, handle important disclosures and steer them clear of legal troubles that might affect their industry.