09 May More on JOBS Act 2.0: House Committee Pushes Agenda Forward

This week the House Financial Services Committee appeared to approve a bunch of bills designed to help small companies and create a logical follow up to the Jumpstart our Business Startups (JOBS) Act of 2012 which got the ball rolling. The final vote tally will come in a few days, but since these are all Republican initiatives and they control the Committee, one assumes the tally will be to recommend these all to the full House. There was a good amount of resistance to the bills despite a feeling among the Democrats that they’d like to appear supportive. I didn’t listen to the whole day-long hearing (I’m a nerd but not that much!), here’s a brief summary of key elements of what they are pushing to the full House:

1. Dramatically expanding the availability of short form registration S-3 to simplify public offerings. Under their bill all SEC reporting companies will be able to use the short form as long as they are reporting for at least a year and filed everything on time in the last year. In a slight change from an earlier floated version of the bill (apparently because of some resistance), the current limit of 1/3 of public float per year on national exchanges will be lifted regardless of public float. Companies with less than $75MM in public float, who will now have S-3 for the first time on the over-the-counter markets, will have the one-third limit for now.

2. Big changes to Rule 144 allowing stock to become publicly tradable without an expensive and time-consuming registration in 90 days instead of the current 6 months. Also creating a sunset of the “scarlet letter” applied to all former shell companies by changing the permanent restriction on selling under Rule 144 if a company is not current in its SEC filings to applying only for two years after a reverse merger.

3. Crowdfunding in JOBS Act 1.0 will be replaced by a new one allowing a raise up to $3MM with no audited financials and up to $5MM with an audit. That could be huge frankly. The requirement to complete a deal with a portal or broker remains, as do the investment limits for non-accredited investors.

As the guy who wrote the book on reverse mergers, I was particularly pleased to see multiple Congresspeople talking about the positive role shell mergers has played for many exciting and legitimate companies like Texas Instruments, Jamba Juice, and many others. A reverse merger remains the fastest way to get a company public. Taking away an annoying and indefensible permanent restriction would be a very positive step. And moving more to company vs. public offering registration just makes sense. It is just too hard, even in this frothy market, for small companies to raise money without the use of the short form for registration. Keep it pushing Congress!!!!