Recently, House Financial Services Committee Chairman Jeb Hensarling (R-TX) and Ranking Member Maxine Waters (D-CA) announced that the House passed legislation to help small businesses, entrepreneurs, and investors. The package, known as the “JOBS and Investor Confidence Act of 2018,” which is referred to as the JOBS Act 3.0. “JOBS” stands for “Jumpstart Our Business Startups.” This larger bill encompasses 32 individual pieces of legislation that have passed the Committee or House this Congress with broad bipartisan support. I’m particularly excited about 1-3, 6 and somewhat less about 10. Whatever happens, its still nice to know that Congress seems to pay attention to small business sometimes!
Every piece of legislation and each sponsor is not listed below, but some highlights of ten selected bills that comprise the package are:
1. H.R. 79, Helping Angels Lead Our Startups (HALOS) Act – This bill defines an “angel investor group” and clarifies a regulation issued by the Securities and Exchange Commission (“SEC”) to ensure that startups can make presentations to others without worrying about compliance with securities laws.
2. H.R. 477, Small Business Mergers, Acquisitions, Sales & Brokerage Simplification Act of 2017 – The bill alleviates costs to small business owners by granting exemptions to the securities registration system for investment bankers who help sell small, privately held companies. It also disqualifies “bad actors” from using the simplified process and does not allow transactions involving shell companies.
3. H.R. 1585, Fair Investment Opportunities for Professional Experts Act – The bill modernizes the definition of accredited investor so those who do not have a high income or high net worth but do have the education and job experience to evaluate investment risks and merits can participate in the growth of promising companies. The definition of accredited investor would include any natural person who is currently licensed or registered as a broker or investment adviser by the SEC or the Financial Industry Regulatory Authority (“FINRA”) or any other natural person the SEC decides, by regulation, to have demonstrable education or job experience to qualify. Such person has professional knowledge of a subject related to an investment, and FINRA verifies their education or job experience.
4. H.R. 1645, Fostering Innovation Act – Amends Section 404(b) of the Sarbanes-Oxley Act (“SOX”) to extend the exemption timeframe for certain low-revenue emerging growth companies (“EGC”) that would otherwise lose their status at the end of the five-year period that currently applies. This allows for certain small companies to maintain their small company status so that they continue to be exempt from SOX auditor attestation requirements.
5. H.R. 3903, Encouraging Public Offerings Act of 2017 – Amends the Securities Act of 1933 to expands provisions of the JOBS Act to all companies, which previously applied only to an EGC. Specifically, the legislation allows issuers to send to the SEC for confidential review, before publicly filing, draft registration statements for Initial Public Offerings (“IPO”) and for follow-on offerings within one year of an IPO. Additionally, this bill allows all companies to “test-the-waters” before filing an IPO, which means they may meet with qualified institutional buyers and other institutional investors to gauge those investors’ interest in the offering. A unanimous vote to help boost the IPO market as the cost have rose due to increasing regulation.
6. H.R. 4281, Expanding Access to Capital for Job Creators Act – Amends the Securities Exchange Act of 1934 to have the SEC’s Advocate for Small Business Capital Formation identify any unique challenges to rural area small businesses when identifying problems that small businesses have with securing access to capital. H.R. 4281 establishes an Office of the Advocate for Small Business Capital Formation within the Securities and Exchange Commission, to expand the focus areas of the Advocate to include rural-area small businesses. This bill also requires that the annual report made by the SEC’s Small Business Advocate include a summary of any unique issues encountered by rural area small businesses. The goal is to ensure that Congress has the most up to date information to make informed decisions on how to help these small businesses grow and thrive.
7. H.R. 6139, Improving Investment Research for Small and Emerging Issuers Act – The bill requires the SEC to carry out a study to evaluate the issues affecting the provision of and reliance upon investment research into small issuers and pre-IPO companies, including EGCs and other small issuers. The goal is to keep all companies (large and small) available to research to ensure markets keep their competitive nature and liquidity.
8. H.R. 6320, Promoting Transparent Standards for Corporate Insiders Act – Requires the SEC to carry out a study to research certain types of amendments to Rule 10b5-1 to ensure that corporate insiders are not able to indirectly engage in illegal insider trading through changes to their trading plans. After completion, the SEC must amend the Rule to be consistent with the results of the study.
9. H.R. 6322, Enhancing Multi-Class Share Disclosures Act — Requires issuers with a multi-class share structure to make certain disclosures in any proxy or consent solicitation material that provide enhanced transparency regarding certain shareholders’ voting power. This will ensure that investors are aware of the rights that attach to certain securities issues.
10. H.R. 6380, Crowdfunding Amendments Act – Allows crowdfunding investors to pool their money together into a fund that is advised by a registered investment advisor (“RIA”). The Act should make crowdfunded issuers more appealing to institutions, and companies more inclined to use the securities exemption.
If you are interested in reading about the individual bills, or some of the others that are not listed, the House Financial Services Committee has the them listed at https://financialservices.house.gov. The Senate will still need to vote on its version, with a final version to be reconciled between the legislatures. Senate Majority Leader Mitch McConnell is committed to bring the package up for vote in the Senate.