Are you an entrepreneur? Do you own a small business? Has it been difficult to find investors to grow your small business? If you answered yes to any of these questions then I can only hope that you’ve heard of the JOBS (Jumpstart Our Business Startup) Act that went into effect Sept 23. The JOBS Act, put into effect by the Securities and Exchange Commission (SEC) will change the way many small businesses are able to seek out investors, who the investors are, experiment with new ways to crowdsource their business ventures and increase the number of how many private investors that one is able to have.
Billy Mitchell, staff writer for InTheCapital, knows just how hard it is to read any government regulation or legislation and making any comprehensive sense of the documents is another task in itself. That is why Billy came up with an overview of six most important things that he thinks the JOBS Act will change as Title II of the JOBS Act goes into effect and why I think for many
and small business owners this is a cause for celebration.
- There are now new rules for seeking out Investors. “In keeping up with technology, Investors can now solicit investments to companies however they like.” Now Investors can reach out to small businesses through a multitude of ways whether it is through email, the company’s website, or even televised methods. Giving Investors the luxury to pick and choose their form of connectivity can improve the range of small businesses that they would like to connect with.
- Who invests in your private company is now more important than ever. The SEC has kept the regulation that any investors of private companies must be accredited by the definition of an accredited investor given by the SEC. The only stipulation is the understanding that the private investor must basically have a net worth that exceeds $1 million at the time of the purchase not including the value of the primary residence. The investor must have an income of $200,000 in each of the two most recent years of joint income, having a spouse, that number is now $300,000 for those years and a reasonable expectation of the same income level in the current year. The SEC’s regulation on Investors can promote the credibility of both the Investor and the private business.
- Crowd sourcing will be redefined. With the lift of restrictions limiting investment solicitation, entrepreneurs and small business are now able to outsource equity, to a certain extent. Crowdsourcing has been one of the most effective ways for projects by entrepreneurs to be funded by using site such as Kickstarter and Indiegogo, through a donation basis and therefore allowing the small business owner to retain ownership of the company, products and services. Now under the JOBS Act, those same sites will now allow the ability to offer equity in return for investments. Of course the investors must be accredited by the SEC. Having the ability to sell equity of one’s company though crowdfunding sites can help small companies grow as they are in early stages of cementing their product in the market.
- Having the capability to work online exclusively may become a growing trend because “websites, investors and issuers of equity will no longer have to deal with people in person as much.” Dealing with investors will be more open to small companies so much so that online investing platforms will surely grow too. There are already a few portals open online for investors and potential clients but those are “currently limited to accredited investors but expect tons more to launch soon.”
- After a certain number of shareholders, many companies begin to feel the stress in which they are inclined to go public. The cap space in which how many shareholders are allowed to have will increase from 500 shareholders to 2000 shareholders. This would give the companies the room to grow without needing to go public if they do not feel that they are ready to do so. “The market for private shareholders is going to skyrocket.”
- Have you heard of Emerging Growth Companies? It is a new label for a specific kind of publicly held company. Emerging Growth Companies will ease the burdens of the SEC on companies with less than $1million in revenue when going public. This will change three things for those companies.
- They will only need two years of audited financial statements when filing for an IPO, instead of three.
- Hey are exempt from having to give shareholders a non-binding vote on executive compensation under the Dodd-Frank rules.
- They aren’t required to hire an outside auditing firm to check internal financial controls.
These three changes to Emerging Growth Companies will decrease restrictions on them, ultimately enticing these companies to enter the market more freely.
The changes that will happen are now in effect and it is a very exciting time for small businesses and entrepreneurs to take full advantage of the changing times ahead. We must all encourage innovation and small projects in order for the JOBS Act to be fully effective. Now is the time, Carpe Diem.