U.S. adopts JOBS Act, containing crowdfunding provisions and benefits for FPIs

May 23, 2012

On April 5, U.S. President Obama signed the Jumpstart Our Business Startups (JOBS) Act, a law intended to help small businesses and startups raise capital. As we discussed in a post earlier this year, the legislation provides a "crowdfunding" registration exemption for transactions involving individual investments not exceeding certain thresholds based on an investor's income and net worth.

The amount raised under the crowdfunding exemption must also be limited to an aggregate annual amount of $1 million. The issuer or intermediary will also have to comply with certain requirements in order to utilize the exemption, including with respect to providing investor warnings, and resales of any securities purchased would be limited for one year.

Of particular interest to Canadian companies are the Act's provisions respecting emerging growth companies (those with annual gross revenues of less than $1 billion), which also apply to foreign private issuers. Among other things, EGCs will now be permitted to communicate, orally or in writing, with qualified institutional investors and institutional accredited investors to gauge interest in a potential offering prior to the filing of a registration statement.

The Act will also affect the disclosure obligations of EGCs by, among other things, permitting an EGC to provide only two years of audited financial statements in an IPO registration statement instead of three years and reducing public company reporting requirements post-IPO. For example, the JOBS Act amends the Sarbanes-Oxley Act of 2002 to exempt EGCs from the requirement that an auditor attest to and report on management's assessment of internal controls over financial reporting.

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