If approved by the Senate and signed into law in its current form, the JOBS Act would:
Considerations for Start-Ups
Generally, it appears that the JOBS Act should be a positive development for small businesses and start-ups trying to raise capital, as it would make the process less cumbersome, increase access to investors, and, for some companies, reduce regulatory burdens. However, antifraud provisions would still apply to offerings and sales of securities, even if exempt from registration requirements, so companies must still be mindful of appropriate disclosures.
In addition, there can be drawbacks to targeting a large pool of smaller investors. For example, small shareholders have rights to inspect the company’s books and records, rights to bring a derivative claim on behalf of the company, and, often, some protections against oppression by the controlling stakeholders, all of which may add additional layers of complexity for the management team. Further, the costs incurred in connection with a large shareholder base can be significant, including execution of subscription documents, shareholder agreements and similar documentation, and implementation of transfer restrictions. Finally, venture capital investors and other sophisticated investors may be discouraged from investing in companies with larger shareholder bases in an effort to avoid the administrative headaches, costs, and potentially greater litigation risk that some believe are caused by large shareholder bases.