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How the JOBS Act Will Affect Small Companies Trying to Raise Money

Last updated 6 years ago

In April 2012, President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act into law, making it easier than ever before for small businesses to raise much-needed funding as they seek to reduce expenses. The Act, which is actually made up of several smaller pieces of legislation, will affect small business owners in several ways:

  • The bill paves the way for small businesses to go public and sell their stock. Under one of the Act’s provisions, an “emerging growth company” is now defined as one that made a total of less than $1 billion over the last fiscal year.
  • The provision also relieves small businesses of the expensive process of having to register with the Securities and Exchange Commission until they have at least 2,000 investors. Instead of the previous limit of $5 million, businesses may now raise up to $50 million in a year before they are obliged to register with the SEC.
  • The Act also removes the SEC’s previous ban on using advertising to attract potential investors from the general public. In the past, this made it very difficult for up-and-coming businesses to find investors.
  • Businesses may now raise up to $1 million using crowd funding, which permits businesses to sell shares to anyone who can afford to buy them, instead of only to accredited investors. This will make it immensely easier for small businesses to raise money quickly.
  • Finally, the Act eases regulatory requirements on community banks, making it easier for them to thrive and lend to small businesses. Under the new law, banks and bank holding companies do not have to register with the SEC until they have at least 2,000 investors, or assets of $10 billion or more.

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