Photo: Flickr/Barack Obama
President Barack Obama signed the JOBS act — Jumpstart Our Business Startups — into law on Thursday, which should make it easier for startups to raise capital early-stage capital.It also relaxes some of the more strict regulations on smaller companies going public.
Here are the highlights:
- The bill contains an edited version of a crowdfunding bill that lets startups raise up to $1 million annually with small-dollar donations. Individuals worth less than $100,000 can invest 5% of their yearly income or $2,000, whichever is higher, in a startup, according to CNNMoney.
- It lifts the “general solicitation” ban, which means startups can advertise themselves and their products and build up hype while they are raising money. According to CNET, this also means you can’t use this as an excuse to keep your financials secret. Some companies would say, “We can’t reveal details about revenue, or user growth because it’s against the law to hype our company while we’re raising a round.” Now they have to have a come up with a new excuse.
- Instead of registering when you have 500 investors, you can now wait until you have 2,000 investors total. Employees don’t count in that number, according to CNNMoney. Facebook and Twitter started to create specialty funds that would collect money from a dozens of investors to invest. The idea was that one specialty fund only counts as one investor. If 24 people wanted to invest in Facebook, then it was 24 closer to the 500 investor limit, and thus closer to being forced to release its financial performance. If this 2,000 rule had been in effect, Facebook’s IPO might have come later.
- If you make less than $1 billion annually, you can go public without following strict disclosure regulations for the first five years. You won’t have to follow all the Sarbanes-Oxley disclosures at first, but this could also be risky for initial investors because they won’t have the full picture.
- If you screw up, you can still be sued, even though you don’t have to follow all the Sarbanes-Oxley regulations. Companies that neglect bookkeeping will face regulatory action and investor lawsuits, according to a report from Reuters.