Newly Enacted JOBS Legislation Should Encourage Initial Public Offerings

While the recently enacted JOBS Act contains numerous provisions that may or may not result in the creation of actual jobs, enterprises that fall under the definition of "emerging growth companies" (EGCs) will see great potential benefits from provisions that may streamline the IPO process, pave the way to public ownership and improve access to capital.

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act (the Act). The acronym may be a misnomer because the likely impact of the legislation on job creation is debatable. But the word “jumpstart” in the title seems appropriate, at least with respect to the provisions that are intended to facilitate and encourage initial public offerings (IPOs). The Act scales back a number of provisions of the Sarbanes-Oxley Act of 2002 (SOX), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), and other federal securities laws and regulations as they apply to “emerging growth companies” (EGCs), which includes all companies conducting an IPO other than those with $1 billion or more in revenues in their most recently completed fiscal year. Congress intended the Act to provide a so-called “on-ramp” for IPO issuers in order to make the IPO process less burdensome, ease their transition to public ownership and improve their access to capital.

It has been widely reported that members of the U.S. Congress from both sides of the aisle were frustrated with what they saw as the failure of the Securities and Exchange Commission (SEC) to relax its rules to alleviate the impact of certain regulations on new and smaller issuers, particularly in light of the economic downturn and the weak IPO market. As a consequence, the Act is unusual in its implementation method. With few exceptions, the EGC provisions are self-executing and effective immediately; they are not to be accomplished through mandated SEC rulemaking but, rather, are direct amendments to the applicable securities laws that have the effect of denying the SEC the power to make contrary rules. It is not surprising, then, that the SEC and individual commissioners have been highly critical of the Act in public appearances and written communications to Congress.