Since last year, 2012 has been heralded as something of a comeback year for IPOs, with financial news outlet 24/7 Wall St. estimating that more than 200 companies are poised to go public this year (including a little startup called Facebook). A recent bill will make that process easier for those companies. President Obama signed the Jumpstart Our Business Startups (JOBS) Act into law April 5, commenting in a statement that “America’s high-growth entrepreneurs and small businesses play a vital role in creating jobs and growing the economy,” and that the act would help them raise capital, create jobs and strengthen the economy.
That’s a tall order. But in aiming to shore up the U.S. IPO market, the JOBS Act brings major change, creating a new category of issuer—the emerging-growth company, which it defines as having less than $1 billion in annual revenues—and creating a streamlined route to IPOs with fewer regulatory burdens along the way. And experts say some of its numerous provisions could become critical tools for companies in a broad range of positions.
The JOBS Act increases the number of shareholders a private company can have before it is required to comply with public company requirements to 2,000 from 500, and it excludes holders of employee equity compensation from that count.
The JOBS Act creates an “IPO on-ramp” for emerging-growth companies, exempting them from a number of regulatory requirements and giving them a one- to five-year post-IPO transition period to phase in compliance with rules including the often-challenging Sarbanes-Oxley Act Section 404(b) internal controls audit requirement and Dodd-Frank Act executive compensation rules. Scaling in say-on-pay regulations could be important, Dodd says, because it’s something many companies have struggled with.
On April 11, the SEC announced it would begin accepting comments prior to starting the JOBS Act rulemaking process, which promises to be a lengthy task for the agency as it continues to interpret Dodd-Frank requirements.