The Jumpstart Our Business Startups Act (JOBS Act) is a law that was instituted in the United States in 2012 with the goal of igniting economic growth by increasing the ability of small businesses to access the capital they need to start up and grow. This act reduces various securities regulations in order to stimulate small business funding through the process of crowdfunding. It is also designed to increase the number of shareholders a business can retain before falling under the requirement to register with the SEC. The JOBS Act also increases the opportunity for general solicitation through social media and other means.
Reduced Restrictions on Crowdfunding
The features of the JOBS Act include reducing crowdfunding restrictions, permitting new types of venture capital sourcing, increasing the ability of small businesses to raise funds, and easing reporting requirements for businesses intending to go public.
The ban on crowdfunding under certain conditions in the exceptions for emerging growth companies in IPOs has been intended to release job creation and entrepreneurial activity and create a positive economic environment for startups.
“Crowdfunding is one of the key elements of the Jumpstart Our Business Startups Act, which enables startups and other businesses to funds raised from small individual investments without having to register an offering with the SEC. Prior to the JOBS Act, venture capitalists, and other wealthy investors were the primary players in this process.
An Expanded Pool of Investors
The JOBS Back has expanded investment possibilities to an entirely new group of individuals who desire to invest in small businesses and startups, even though they may lack substantial wealth.
The three exemptions designated within the Jumpstart Our Business Startups Act that facilitate crowdfunding include:
Title II or Accredited Crowdfunding
Under Regulation D, Rule 506(c), issuers are permitted to raise an unlimited amount of capital. These issuers are also permitted to engage in general solicitation or advertising online and offline. Only accredited investors are permitted to participate under this exemption.
Title II or Reg CF (Regulation Crowdfunding)
The regulation crowdfunding exemption permits smaller firms to fundraise up to $1.07 million from accredited and nonaccredited investors.
Title IV or Reg A+ (aka a Mini-IPO exemption)
Reg A+ as two tiers. Tier 1 permits issuers to raise up to $20 million USD and tier 2 allows the amount raised to reach $50 million USD. Issuers using tier 2 are not subject to a state Blue Sky review, and they may raise money from all 50 states. The offerings under this exemption are open to accredited and non-accredited investors.
The Jumpstart Our Business Startups Act has certainly opened crowdfunding possibilities for small businesses.
