The goal of the “Jumpstart Our Business Startups Act” or JOBS Act, which was signed by President Obama on April 5, 2012, is to increase American job creation and economic growth by improving access to public capital markets for emerging growth companies. An emerging growth company is one that has total annual gross revenues of less than $1billion. Essentially, the intent of the legislation is to ease the burden for small businesses and entrepreneurs wanting to access capital. It also, through crowdfunding, legally allows companies to solicit money from investors online or through brokers without having to go through the additional filing requirements of the Securities and Exchange Commission (SEC).
A company that is considered an emerging growth company would remain as such until one of the following four earliest occurrences: (1) the last day of the fiscal year of the issuer during which it had total annual gross revenues of $1 billion, (2) the last day of the fiscal year following the fifth anniversary of the company’s initial public offering (IPO), (3) the date during which the Company has issued $1billion in nonconvertible debt during the previous three-year period, and (4) the date the Company is considered to be a large accelerated filer.
The benefits and cost reductions of being considered an emerging growth company result from several SEC regulation exemptions. Some of these benefits include the following: (1) Companies would not be required to present more than two years of audited financial statements in the IPO, (2) Companies would be permitted to wait to apply new or revised accounting pronouncements until such time as private companies are required to adopt the new or revised pronouncements, (3) Companies are able to have up to 2,000 shareholders or 500 unaccredited investors and still remain exempt from registering with the SEC, (4) Companies are exempt from the audit of internal control requirements under Section 404 for up to five years, and (5) the JOBS Act allows the use of advertising in connection with an IPO, provided that all purchasers of securities are accredited investors.
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