Currently, under Section 12(g) of the Securities Exchange Act of 1934, companies with more than $10 million in assets whose equity securities are held of record by more than 500 holders must file periodic reports with the SEC. While the $10 million threshold had been raised from time to time over the years from an original $1 million level, the 500 holders of record requirement has never been changed.
Title V of the Jumpstart Our Business Startups Act, or JOBS Act (expected to be singed into law soon by President Obama), amends Section 12(g)(1) of the Exchange Act to increase the holders of record threshold for most issues to either (i) 2,000 persons, or (ii) 500 persons who are not accredited investors. For banks and bank holding companies, the threshold number of record holders will be increased to 2,000 persons.
Title V of the JOBS Act also provides that persons holding securities received pursuant to an employee compensation plan in transactions exempted from the registration requirements of Section 5 of the Securities Act of 1933 (e.g., because they were issued under Rule 701 of the Securities Act) will be excluded from being counted as holders of record for purposes of the Section 12(g) calculation. The JOBS Act notably did not otherwise alter how holders of record are determined and beneficial owners of securities who hold shares in “street name” will generally not be counted as holders of record. Shares held in “street name” by the Depository Trust Company will continue …
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Section 201 of the Jumpstart Our Business Startups Act, or JOBS Act (expected to be signed into law soon by President Obama), requires the SEC to change the rules of a Rule 506 private placement to allow for general solicitation or general advertising so long as all purchasers are accredited investors.
Currently, Rule 502(c) prohibits an issuer in a private placement, or any person on its behalf, from offering or selling securities by any form of general advertising, including any ad, article, or notice published in any newspaper or magazine, on TV, or over the radio.
Depending on how the Commission revises its rules (they have 90 days from enactment), this change could significantly expand the way companies seek investors for private offerings. Imagine cold calls, Internet pop-ups, billboards, and hedge fund ads on TV. Of course the issuer will have to take reasonable steps to verify that purchasers are accredited investors, which is something responsible issuers do anyway.
Proponents argue lifting the ban on advertising promotes transparency, while critics (including key members of the Commission) argue the ban is an important protection against general solicitations reaching unsophisticated investors who may be duped by unscrupulous offers.
The JOBS Act further provides that any person who maintains a platform or mechanism for such advertisements does not have to register as a broker-dealer as long as they receive no compensation in connection with the purchase or sale of a security and do not have possession of customer funds or securities, among other …
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The U.S. House of Representatives, by a vote of 380 to 41, has passed the Jumpstart Our Business Startups Act, or JOBS Act in the form previously approved by the Senate last week. The bill now goes to President Obama, who is expected to sign it into law. The JOBS Act significantly impacts the securities laws, including through a new way to raise money known as “crowdfunding.”
The JOBS Act creates a new securities registration exemption known as “crowdfunding” that issuers can rely on to sell up to $1 million worth of securities to non-accredited investors as long as no individual investor invests more than: (a) $2,000 or 5% of the investor’s annual income in any 12-month period (for investors with annual income or net worth less than $100,000); or (b) 10% of the investor’s annual income or net worth up to $100,000 in any 12-month period (for investors with annual income or net worth in excess of $100,000). And, these “crowdfunders” do not count toward the newly-increased shareholders of record threshold that triggers Exchange Act registration under Section 12(g).
The securities may only be issued through a registered broker-dealer or “funding portal” over the internet that complies with additional requirements. The issuer has certain disclosure requirements during the offering process and following the offering.
Crowdfunding is a popular concept among those who see it as a way to empower smaller investors and smaller companies without access to traditional angel investors. However, regulators, including SEC Chairman Schapiro, have raised concerns …
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