What is the Jumpstart Our Business Startups Act?
The Jumpstart Our Business Startups (JOBS) law is an American law signed by President Barack Obama on April 5, 2020, which relaxes regulations imposed by the Securities And Exchange Commission (SEC) on small businesses. It reduces reporting and disclosure requirements for businesses with sales of less than $ 1 billion and allows the publicity of securities offers. It also allows better access to crowdfunding and considerably increases the number of companies that can offer shares without going through SEC registration.
Key points to remember
- JOBS law relaxes reporting, monitoring and advertising regulations for companies trying to raise funds for investors.
- Law allows companies with sales of less than $ 1 billion to disclose less information to investors
- The law allows non-accredited investors to invest in startups via crowdfunding and “mini-IPO”
Understanding the Jumpstart Our Business Startups Act (JOBS)
The Jobs Act aims to make it easier for startups to raise capital. Secondly, it is intended to allow individual investors to invest in startups. Supporters of the legislation argued that SEC rules prevented startups from raising the capital they needed to grow. Opponents have argued that SEC regulations exist to provide oversight and transparency that prevent people from defrauding investors.
The Jobs Act establishes the category of “emerging growth companies”, which the SEC defines as a company that issues shares with total gross annual revenues of less than $ 1 billion in its last fiscal year. The Jobs Act reduces the reporting and monitoring obligations for these companies. Before the Jobs Act, in most cases, only accredited investors could invest in startups.
The JOBS law allows retail investors to invest in startups in two ways. First of all, it allows startups to raise up to $ 1 million via crowdfunding, which is a form of investment by many small investors pooling their resources. It’s different from crowdfunding sites like Kickstarter, where people donate money and don’t receive equity for their contributions. Second, it significantly expands a category under a rule called “Regulation A” (or Reg A), which allows companies to offer shares without going through the SEC registration process. Under JOBS, the expanded Reg A, often called Reg A +, allows companies to offer up to $ 50 million in inventory each year without having to meet normal registration requirements. Individual investors can invest up to certain amounts using these two methods, which gives them access to relatively risky venture capital investments.