The JOBS Bill & Securities Laws
Senate and House Approve Major Overhauls of Federal Securities Law
This week the house and senate JOBS bills were reconciled and H.R. 3606 was sent to the president to be signed into law. The White House has publicly supported the bill, and is expected to sign the bill soon. The 22 page bill has seven different titles, each of which is intended to make it easier for companies to raise money.
Title I “Reopening American Capital Markets to Emerging Growth Companies” creates reduced reporting obligations for “emerging growth companies,” a newly defined classification of businesses. These reduced filing and reporting obligations mean that only the largest companies will have to fully comply with the burdensome filing and reporting obligations applicable to public companies.
Title II “Access to Capital for Job Creators” allows for general solicitation in 506 private placements, so long as all of the investors are accredited investors. Under current law companies trying to raise money without “going public” (i.e. filing a registration statement, which is both extraordinarily time consuming and expensive) can not generally solicit investors. Rather, they must only offer the sale of their securities to individuals with whom they already have an existing relationship. Private placements under 506 are especially popular because, companies can raise an unlimited amount of money under this rule.
Title III “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012″, or the “CROWDFUND Act”, enables issuers of securities to sell their stock online. Issuers can raise up to $1 million, and individuals can invest from $2,000 to $10,000 in a single company. The transaction must be done through a broker or a “funding portal”. The crowdfunding portion of the bill makes up over one-third of the entire bill and deserves its own post discussing all the details. We will soon be authoring such a post.
Title IV “Small Company Capital Formation” instructs the SEC to create a class of securities exempted from public regulation, so long as the companies do not sell more than $50 million of securities in a 12 month period. Under this exemption companies will be able to publicly offer stock, and the stock will not be subject to the resale restrictions of Rule 144. However, Congress instructed the SEC to flesh out the details of this exemption, thus we do not yet know much about exactly how this exemption will work.
Title V “Private Company Flexibility and Growth” makes it easier for larger companies to remain privately held. This portion of the bill allows private companies with assets exceeding $10,000,000 to remain private so long as they have less than 2,000 shareholders and less than 500 shareholders who are not accredited investors.
Title VI “Capital Expansion” this portion of the bill increases the shareholders of record threshold from 500 to 2,000 for banks and bank holding companies (once the threshold is reached, the company must file a registration statement).
Title VII “Outreach on Changes to the Law” requires the SEC to make efforts to inform small and medium sized businesses of the legal changes created by the JOBS Act.
Securities Law & Public Offerings
Zynga Makes Secondary Public Offering
Zynga went public a little less than four months ago, and is now offering nearly 43 million shares at $12 each. This round will not correspond with the issuance of additional securities, rather the offering is comprised of existing shares from early investors and executives which want to liquidate some of their holdings in the company. It is widely believed that the timing is crucial because it allows insiders to sell a large block of their shares ahead of Facebook’s expected May IPO.
Employment Law & Social Media
Federal Legislation to Ban Employers from Requesting Facebook Passwords?
There ‘s been more fall-out from the recent media coverage discussing how employers are seeking Facebook passwords from potential employees. Facebook has issued a statement denouncing such employment practices, and Democratic lawmakers in Congress have attempted to amend an FCC bill to prevent employers from making such requests. However House Republicans have blocked the current measure, claiming that Congress should address this issue differently. Senators Charles Schumer and Richard Blumenthal have requested Attorney General Eric Holder to look into whether such requests violate existing federal law.