The JOBS Act of 2012: The Struggle between Capital Formation and Investor Protections

Abstract

The President signed the Jumpstart Our Business Startups (JOBS) Act on April 5, 2012, to overwhelmingly bipartisan, congressional support. The legislation was enacted to “increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies.” The Act was an amalgamation of six related bills introduced in the House of Representatives. The law reduces regulatory burden on smaller companies, eliminates the strict prohibition of general solicitation and advertising in private offerings, allows companies to utilize crowdfunding up to $1 million per year, extends the small issues exemption to offerings up to $50 million, and increases the maximum number of shareholders to 2,000 for private companies and banks exempt from registration. This Article details at the provisions of the JOBS Act and analyzes their impact on capital formation and investor protection. Part I discusses the Reopening American Capital Markets to Emerging Growth Companies Act, examining the emerging growth company status and the impact on issuers and investors. Part II discusses Access to Capital for Job Creators Act, which lifts the ban on general solicitation for offering made up solely of accredited investors or qualified institutional buyers. Part III discusses the Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act, which legalizes equity crowdfunding. Part III will examine the crowdfunding provision and the requirements for issuers, intermediaries, and investors. Part IV discusses the Small Company Capital Formation Act, which increases the cap on Regulation A offerings from $5 million to $50 million. In conclusion, Part V discusses both Private Company Flexibility and Growth Act and Capital Expansion Act, which increase the shareholder limit for private companies and banks.