In the midst of a pandemic, small and medium-scale enterprises (SMEs) in the United States are facing tough times. How can the 2012 JOBS Act help?
What is the JOBS Act of 2012?
The Jumpstart Our Businesses Act of 2012 (JOBS Act) is a law that encourages funding for SMEs in the United States. The JOBS Act relaxed the stringent regulations that the Securities and Exchange Commission (SEC) previously imposed on SMEs.
The law has been lauded by SMEs since its enforcement. Over time, it has delivered the following benefits to entrepreneurs:
- Significantly lessened requirements on reporting and disclosure for corporate entities with lower than US$ 1billion in revenue, or those classified as emerging growth companies (EGCs);
- Allowed the advertising of security offerings;
- Gave smaller companies access to crowdfunding options or mini-IPOs; and
- Expanded the count of SMEs able to offer stock without going through the SEC.
The stipulations of the JOBS Act apply to both domestic and foreign entities.
Also read: What is An Accredited Investor?
Impact of The JOBS Act of 2012 on Investors and Other Corporate Entities
On paper, the JOBS Act looks like a godsend for SMEs, but what implications does it have for the companies planning to invest in them?
The law allows interested parties two modes of investing: through crowdfunding or under Regulation A.
Startups can raise funds to a total of US$ 1 million through crowdfunding. The small investors who pool their resources for a venture under the JOBS Act get equity. This is contrasted by some crowdfunding platforms that source money from people who get nothing in return.
Regulation A or A+ Investments
Section 401 of the JOBS Act expanded a rule called “Regulation A,” which enables companies to offer up to US$ 50 million in stocks to potential investors without necessarily meeting standard registration. Referred to as Regulation A+, the expanded rule also allows companies to offer those stocks to the public and not just accredited investors through a mini-IPO.
In both options, potential investors can invest up to specific stipulated amounts. These investments give them access to venture capital investments, but not without risk.