[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3606 Engrossed in House (EH)]
112th CONGRESS
2d Session
H. R. 3606
_______________________________________________________________________
AN ACT
To increase American job creation and economic growth by improving
access to the public capital markets for emerging growth companies.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Jumpstart Our Business Startups
Act''.
SEC. 2. TABLE OF CONTENTS.
The table of contents of this Act is as follows:
Sec. 1. Short title.
Sec. 2. Table of contents.
TITLE I--REOPENING AMERICAN CAPITAL MARKETS TO EMERGING GROWTH
COMPANIES
Sec. 101. Definitions.
Sec. 102. Disclosure obligations.
Sec. 103. Internal controls audit.
Sec. 104. Auditing standards.
Sec. 105. Availability of information about emerging growth companies.
Sec. 106. Other matters.
Sec. 107. Opt-in right for emerging growth companies.
Sec. 108. Review of Regulation S-K.
TITLE II--ACCESS TO CAPITAL FOR JOB CREATORS
Sec. 201. Modification of exemption.
TITLE III--ENTREPRENEUR ACCESS TO CAPITAL
Sec. 301. Crowdfunding exemption.
Sec. 302. Exclusion of crowdfunding investors from shareholder cap.
Sec. 303. Preemption of State law.
TITLE IV--SMALL COMPANY CAPITAL FORMATION
Sec. 401. Authority to exempt certain securities.
Sec. 402. Study on the impact of State Blue Sky laws on Regulation A
offerings.
TITLE V--PRIVATE COMPANY FLEXIBILITY AND GROWTH
Sec. 501. Threshold for registration.
Sec. 502. Employees.
Sec. 503. Commission rulemaking.
Sec. 504. Commission study of enforcement authority under Rule 12g5-1.
TITLE VI--CAPITAL EXPANSION
Sec. 601. Shareholder threshold for registration.
Sec. 602. Rulemaking.
TITLE VII--OUTREACH ON CHANGES TO THE LAW
Sec. 701. Outreach by the Commission.
TITLE I--REOPENING AMERICAN CAPITAL MARKETS TO EMERGING GROWTH
COMPANIES
SEC. 101. DEFINITIONS.
(a) Securities Act of 1933.--Section 2(a) of the Securities Act of
1933 (15 U.S.C. 77b(a)) is amended by adding at the end the following:
``(19) The term `emerging growth company' means an issuer
that had total annual gross revenues of less than
$1,000,000,000 (as such amount is indexed for inflation every 5
years by the Commission to reflect the change in the Consumer
Price Index for All Urban Consumers published by the Bureau of
Labor Statistics, setting the threshold to the nearest
1,000,000) during its most recently completed fiscal year. An
issuer that is an emerging growth company as of the first day
of that fiscal year shall continue to be deemed an emerging
growth company until the earliest of--
``(A) the last day of the fiscal year of the issuer
during which it had total annual gross revenues of
$1,000,000,000 (as such amount is indexed for inflation
every 5 years by the Commission to reflect the change
in the Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics, setting
the threshold to the nearest 1,000,000) or more;
``(B) the last day of the fiscal year of the issuer
following the fifth anniversary of the date of the
first sale of common equity securities of the issuer
pursuant to an effective registration statement under
this title;
``(C) the date on which such issuer has, during the
previous 3-year period, issued more than $1,000,000,000
in non-convertible debt; or
``(D) the date on which such issuer is deemed to be
a `large accelerated filer', as defined in section
240.12b-2 of title 17, Code of Federal Regulations, or
any successor thereto.''.
(b) Securities Exchange Act of 1934.--Section 3(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended--
(1) by redesignating paragraph (77), as added by section
941(a) of the Investor Protection and Securities Reform Act of
2010 (Public Law 111-203, 124 Stat. 1890), as paragraph (79);
and
(2) by adding at the end the following:
``(80) Emerging growth company.--The term `emerging growth
company' means an issuer that had total annual gross revenues
of less than $1,000,000,000 (as such amount is indexed for
inflation every 5 years by the Commission to reflect the change
in the Consumer Price Index for All Urban Consumers published
by the Bureau of Labor Statistics, setting the threshold to the
nearest 1,000,000) during its most recently completed fiscal
year. An issuer that is an emerging growth company as of the
first day of that fiscal year shall continue to be deemed an
emerging growth company until the earliest of--
``(A) the last day of the fiscal year of the issuer
during which it had total annual gross revenues of
$1,000,000,000 (as such amount is indexed for inflation
every 5 years by the Commission to reflect the change
in the Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics, setting
the threshold to the nearest 1,000,000) or more;
``(B) the last day of the fiscal year of the issuer
following the fifth anniversary of the date of the
first sale of common equity securities of the issuer
pursuant to an effective registration statement under
the Securities Act of 1933;
``(C) the date on which such issuer has, during the
previous 3-year period, issued more than $1,000,000,000
in non-convertible debt; or
``(D) the date on which such issuer is deemed to be
a `large accelerated filer', as defined in section
240.12b-2 of title 17, Code of Federal Regulations, or
any successor thereto.''.
(c) Other Definitions.--As used in this title, the following
definitions shall apply:
(1) Commission.--The term ``Commission'' means the
Securities and Exchange Commission.
(2) Initial public offering date.--The term ``initial
public offering date'' means the date of the first sale of
common equity securities of an issuer pursuant to an effective
registration statement under the Securities Act of 1933.
(d) Effective Date.--Notwithstanding section 2(a)(19) of the
Securities Act of 1933 and section 3(a)(80) of the Securities Exchange
Act of 1934, an issuer shall not be an emerging growth company for
purposes of such Acts if the first sale of common equity securities of
such issuer pursuant to an effective registration statement under the
Securities Act of 1933 occurred on or before December 8, 2011.
SEC. 102. DISCLOSURE OBLIGATIONS.
(a) Executive Compensation.--
(1) Exemption.--Section 14A(e) of the Securities Exchange
Act of 1934 (15 U.S.C. 78n-1(e)) is amended--
(A) by striking ``The Commission may'' and
inserting the following:
``(1) In general.-- The Commission may'';
(B) by striking ``an issuer'' and inserting ``any
other issuer''; and
(C) by adding at the end the following:
``(2) Treatment of emerging growth companies.--
``(A) In general.--An emerging growth company shall
be exempt from the requirements of subsections (a) and
(b).
``(B) Compliance after termination of emerging
growth company treatment.--An issuer that was an
emerging growth company but is no longer an emerging
growth company shall include the first separate
resolution described under subsection (a)(1) not later
than the end of--
``(i) in the case of an issuer that was an
emerging growth company for less than 2 years
after the date of first sale of common equity
securities of the issuer pursuant to an
effective registration statement under the
Securities Act of 1933, the 3-year period
beginning on such date; and
``(ii) in the case of any other issuer, the
1-year period beginning on the date the issuer
is no longer an emerging growth company.''.
(2) Proxies.--Section 14(i) of the Securities Exchange Act
of 1934 (15 U.S.C. 78n(i)) is amended by inserting ``, for any
issuer other than an emerging growth company,'' after
``including''.
(3) Compensation disclosures.--Section 953(b)(1) of the
Investor Protection and Securities Reform Act of 2010 (Public
Law 111-203; 124 Stat. 1904) is amended by inserting ``, other
than an emerging growth company, as that term is defined in
section 3(a) of the Securities Exchange Act of 1934,'' after
``require each issuer''.
(b) Financial Disclosures and Accounting Pronouncements.--
(1) Securities act of 1933.--Section 7(a) of the Securities
Act of 1933 (15 U.S.C. 77g(a)) is amended--
(A) by striking ``(a) The registration'' and
inserting the following:
``(a) Information Required in Registration Statement.--
``(1) In general.--The registration''; and
(B) by adding at the end the following:
``(2) Treatment of emerging growth companies.--An emerging
growth company--
``(A) need not present more than 2 years of audited
financial statements in order for the registration
statement of such emerging growth company with respect
to an initial public offering of its common equity
securities to be effective, and in any other
registration statement to be filed with the Commission,
an emerging growth company need not present selected
financial data in accordance with section 229.301 of
title 17, Code of Federal Regulations, for any period
prior to the earliest audited period presented in
connection with its initial public offering; and
``(B) may not be required to comply with any new or
revised financial accounting standard until such date
that a company that is not an issuer (as defined under
section 2(a) of the Sarbanes-Oxley Act of 2002 (15
U.S.C. 7201(a)) is required to comply with such new or
revised accounting standard, if such standard applies
to companies that are not issuers.''.
(2) Securities exchange act of 1934.--Section 13(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) is amended
by adding at the end the following: ``In any registration
statement, periodic report, or other reports to be filed with
the Commission, an emerging growth company need not present
selected financial data in accordance with section 229.301 of
title 17, Code of Federal Regulations, for any period prior to
the earliest audited period presented in connection with its
first registration statement that became effective under this
Act or the Securities Act of 1933 and, with respect to any such
statement or reports, an emerging growth company may not be
required to comply with any new or revised financial accounting
standard until such date that a company that is not an issuer
(as defined under section 2(a) of the Sarbanes-Oxley Act of
2002 (15 U.S.C. 7201(a))) is required to comply with such new
or revised accounting standard, if such standard applies to
companies that are not issuers.''.
(c) Other Disclosures.--An emerging growth company may comply with
section 229.303(a) of title 17, Code of Federal Regulations, or any
successor thereto, by providing information required by such section
with respect to the financial statements of the emerging growth company
for each period presented pursuant to section 7(a) of the Securities
Act of 1933 (15 U.S.C. 77g(a)). An emerging growth company may comply
with section 229.402 of title 17, Code of Federal Regulations, or any
successor thereto, by disclosing the same information as any issuer
with a market value of outstanding voting and nonvoting common equity
held by non-affiliates of less than $75,000,000.
SEC. 103. INTERNAL CONTROLS AUDIT.
Section 404(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7262(b)) is amended by inserting ``, other than an issuer that is an
emerging growth company (as defined in section 3 of the Securities
Exchange Act of 1934),'' before ``shall attest to''.
SEC. 104. AUDITING STANDARDS.
Section 103(a)(3) of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7213(a)(3)) is amended by adding at the end the following:
``(C) Transition period for emerging growth
companies.--Any rules of the Board requiring mandatory
audit firm rotation or a supplement to the auditor's
report in which the auditor would be required to
provide additional information about the audit and the
financial statements of the issuer (auditor discussion
and analysis) shall not apply to an audit of an
emerging growth company, as defined in section 3 of the
Securities Exchange Act of 1934. Any additional rules
adopted by the Board after the date of enactment of
this subparagraph shall not apply to an audit of any
emerging growth company, unless the Commission
determines that the application of such additional
requirements is necessary or appropriate in the public
interest, after considering the protection of investors
and whether the action will promote efficiency,
competition, and capital formation.''.
SEC. 105. AVAILABILITY OF INFORMATION ABOUT EMERGING GROWTH COMPANIES.
(a) Provision of Research.--Section 2(a)(3) of the Securities Act
of 1933 (15 U.S.C. 77b(a)(3)) is amended by adding at the end the
following: ``The publication or distribution by a broker or dealer of a
research report about an emerging growth company that is the subject of
a proposed public offering of the common equity securities of such
emerging growth company pursuant to a registration statement that the
issuer proposes to file, or has filed, or that is effective shall be
deemed for purposes of paragraph (10) of this subsection and section
5(c) not to constitute an offer for sale or offer to sell a security,
even if the broker or dealer is participating or will participate in
the registered offering of the securities of the issuer. As used in
this paragraph, the term `research report' means a written, electronic,
or oral communication that includes information, opinions, or
recommendations with respect to securities of an issuer or an analysis
of a security or an issuer, whether or not it provides information
reasonably sufficient upon which to base an investment decision.''.
(b) Securities Analyst Communications.--Section 15D of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-6) is amended--
(1) by redesignating subsection (c) as subsection (d); and
(2) by inserting after subsection (b) the following:
``(c) Limitation.--Notwithstanding subsection (a) or any other
provision of law, neither the Commission nor any national securities
association registered under section 15A may adopt or maintain any rule
or regulation in connection with an initial public offering of the
common equity of an emerging growth company--
``(1) restricting, based on functional role, which
associated persons of a broker, dealer, or member of a national
securities association, may arrange for communications between
a securities analyst and a potential investor; or
``(2) restricting a securities analyst from participating
in any communications with the management of an emerging growth
company that is also attended by any other associated person of
a broker, dealer, or member of a national securities
association whose functional role is other than as a securities
analyst.''.
(c) Expanding Permissible Communications.--Section 5 of the
Securities Act of 1933 (15 U.S.C. 77e) is amended--
(1) by redesignating subsection (d) as subsection (e); and
(2) by inserting after subsection (c) the following:
``(d) Limitation.--Notwithstanding any other provision of this
section, an emerging growth company or any person authorized to act on
behalf of an emerging growth company may engage in oral or written
communications with potential investors that are qualified
institutional buyers or institutions that are accredited investors, as
such terms are respectively defined in section 230.144A and section
230.501(a) of title 17, Code of Federal Regulations, or any successor
thereto, to determine whether such investors might have an interest in
a contemplated securities offering, either prior to or following the
date of filing of a registration statement with respect to such
securities with the Commission, subject to the requirement of
subsection (b)(2).''.
(d) Post Offering Communications.--Neither the Commission nor any
national securities association registered under section 15A of the
Securities Exchange Act of 1934 may adopt or maintain any rule or
regulation prohibiting any broker, dealer, or member of a national
securities association from publishing or distributing any research
report or making a public appearance, with respect to the securities of
an emerging growth company, either--
(1) within any prescribed period of time following the
initial public offering date of the emerging growth company; or
(2) within any prescribed period of time prior to the
expiration date of any agreement between the broker, dealer, or
member of a national securities association and the emerging
growth company or its shareholders that restricts or prohibits
the sale of securities held by the emerging growth company or
its shareholders after the initial public offering date.
SEC. 106. OTHER MATTERS.
(a) Draft Registration Statements.--Section 6 of the Securities Act
of 1933 (15 U.S.C. 77f) is amended by adding at the end the following:
``(e) Emerging Growth Companies.--
``(1) In general.--Any emerging growth company, prior to
its initial public offering date, may confidentially submit to
the Commission a draft registration statement, for confidential
nonpublic review by the staff of the Commission prior to public
filing, provided that the initial confidential submission and
all amendments thereto shall be publicly filed with the
Commission not later than 21 days before the date on which the
issuer conducts a road show, as such term is defined in section
230.433(h)(4) of title 17, Code of Federal Regulations, or any
successor thereto.
``(2) Confidentiality.--Notwithstanding any other provision
of this title, the Commission shall not be compelled to
disclose any information provided to or obtained by the
Commission pursuant to this subsection. For purposes of section
552 of title 5, United States Code, this subsection shall be
considered a statute described in subsection (b)(3)(B) of such
section 552. Information described in or obtained pursuant to
this subsection shall be deemed to constitute confidential
information for purposes of section 24(b)(2) of the Securities
Exchange Act of 1934.''.
(b) Tick Size.--Section 11A(c) of the Securities Exchange Act of
1934 (15 U.S.C. 78k-1(c)) is amended by adding at the end the following
new paragraph:
``(6) Tick size.--
``(A) Study and report.--The Commission shall
conduct a study examining the transition to trading and
quoting securities in one penny increments, also known
as decimalization. The study shall examine the impact
that decimalization has had on the number of initial
public offerings since its implementation relative to
the period before its implementation. The study shall
also examine the impact that this change has had on
liquidity for small and middle capitalization company
securities and whether there is sufficient economic
incentive to support trading operations in these
securities in penny increments. Not later than 90 days
after the date of enactment of this paragraph, the
Commission shall submit to Congress a report on the
findings of the study.
``(B) Designation.--If the Commission determines
that the securities of emerging growth companies should
be quoted and traded using a minimum increment of
greater than $0.01, the Commission may, by rule not
later than 180 days after the date of enactment of this
paragraph, designate a minimum increment for the
securities of emerging growth companies that is greater
than $0.01 but less than $0.10 for use in all quoting
and trading of securities in any exchange or other
execution venue.''.
SEC. 107. OPT-IN RIGHT FOR EMERGING GROWTH COMPANIES.
(a) In General.--With respect to an exemption provided to emerging
growth companies under this title, or an amendment made by this title,
an emerging growth company may choose to forgo such exemption and
instead comply with the requirements that apply to an issuer that is
not an emerging growth company.
(b) Special Rule.--Notwithstanding subsection (a), with respect to
the extension of time to comply with new or revised financial
accounting standards provided under section 7(a)(2)(B) of the
Securities Act of 1933 and section 13(a) of the Securities Exchange Act
of 1934, as added by section 102(b), if an emerging growth company
chooses to comply with such standards to the same extent that a non-
emerging growth company is required to comply with such standards, the
emerging growth company--
(1) must make such choice at the time the company is first
required to file a registration statement, periodic report, or
other report with the Commission under section 13 of the
Securities Exchange Act of 1934 and notify the Securities and
Exchange Commission of such choice;
(2) may not select some standards to comply with in such
manner and not others, but must comply with all such standards
to the same extent that a non-emerging growth company is
required to comply with such standards; and
(3) must continue to comply with such standards to the same
extent that a non-emerging growth company is required to comply
with such standards for as long as the company remains an
emerging growth company.
SEC. 108. REVIEW OF REGULATION S-K.
(a) Review.--The Securities and Exchange Commission shall conduct a
review of its Regulation S-K (17 CFR 229.10 et seq.) to--
(1) comprehensively analyze the current registration
requirements of such regulation; and
(2) determine how such requirements can be updated to
modernize and simplify the registration process and reduce the
costs and other burdens associated with these requirements for
issuers who are emerging growth companies.
(b) Report.--Not later the 180 days after the date of enactment of
this title, the Commission shall transmit to Congress a report of the
review conducted under subsection (a). The report shall include the
specific recommendations of the Commission on how to streamline the
registration process in order to make it more efficient and less
burdensome for the Commission and for prospective issuers who are
emerging growth companies.
TITLE II--ACCESS TO CAPITAL FOR JOB CREATORS
SEC. 201. MODIFICATION OF EXEMPTION.
(a) Modification of Rules.--
(1) Not later than 90 days after the date of the enactment
of this Act, the Securities and Exchange Commission shall
revise its rules issued in section 230.506 of title 17, Code of
Federal Regulations, to provide that the prohibition against
general solicitation or general advertising contained in
section 230.502(c) of such title shall not apply to offers and
sales of securities made pursuant to section 230.506, provided
that all purchasers of the securities are accredited investors.
Such rules shall require the issuer to take reasonable steps to
verify that purchasers of the securities are accredited
investors, using such methods as determined by the Commission.
Section 230.506 of title 17, Code of Federal Regulations, as
revised pursuant to this section, shall continue to be treated
as a regulation issued under section 4(2) of the Securities Act
of 1933 (15 U.S.C. 77d(2)).
(2) Not later than 90 days after the date of enactment of
this Act, the Securities and Exchange Commission shall revise
subsection (d)(1) of section 230.144A of title 17, Code of
Federal Regulations, to provide that securities sold under such
revised exemption may be offered to persons other than
qualified institutional buyers, including by means of general
solicitation or general advertising, provided that securities
are sold only to persons that the seller and any person acting
on behalf of the seller reasonably believe is a qualified
institutional buyer.
(b) Consistency in Interpretation.--Section 4 of the Securities Act
of 1933 (15 U.S.C. 77d) is amended--
(1) by striking ``The provisions of section 5'' and
inserting ``(a) The provisions of section 5''; and
(2) by adding at the end the following:
``(b) Offers and sales exempt under section 230.506 of title 17,
Code of Federal Regulations (as revised pursuant to section 201 of the
Jumpstart Our Business Startups Act) shall not be deemed public
offerings under the Federal securities laws as a result of general
advertising or general solicitation.''.
(c) Explanation of Exemption.--Section 4 of the Securities Act of
1933 (15 U.S.C. 77d) is amended--
(1) by striking ``The provisions of section 5'' and
inserting ``(a) The provisions of section 5''; and
(2) by adding at the end the following:
``(b)(1) With respect to securities offered and sold in compliance
with Rule 506 of Regulation D under this Act, no person who meets the
conditions set forth in paragraph (2) shall be subject to registration
as a broker or dealer pursuant to section 15(a)(1) of this title,
solely because--
``(A) that person maintains a platform or mechanism
that permits the offer, sale, purchase, or negotiation
of or with respect to securities, or permits general
solicitations, general advertisements, or similar or
related activities by issuers of such securities,
whether online, in person, or through any other means;
``(B) that person or any person associated with
that person co-invests in such securities; or
``(C) that person or any person associated with
that person provides ancillary services with respect to
such securities.
``(2) The exemption provided in paragraph (1) shall apply to any
person described in such paragraph if--
``(A) such person and each person associated with that
person receives no compensation in connection with the purchase
or sale of such security;
``(B) such person and each person associated with that
person does not have possession of customer funds or securities
in connection with the purchase or sale of such security; and
``(C) such person is not subject to a statutory
disqualification as defined in section 3(a)(39) of this title
and does not have any person associated with that person
subject to such a statutory disqualification.
``(3) For the purposes of this subsection, the term `ancillary
services' means--
``(A) the provision of due diligence services, in
connection with the offer, sale, purchase, or negotiation of
such security, so long as such services do not include, for
separate compensation, investment advice or recommendations to
issuers or investors; and
``(B) the provision of standardized documents to the
issuers and investors, so long as such person or entity does
not negotiate the terms of the issuance for and on behalf of
third parties and issuers are not required to use the
standardized documents as a condition of using the service.''.
TITLE III--ENTREPRENEUR ACCESS TO CAPITAL
SEC. 301. CROWDFUNDING EXEMPTION.
(a) Securities Act of 1933.--Section 4 of the Securities Act of
1933 (15 U.S.C. 77d) (as amended by section 201) is further amended by
adding at the end the following:
``(6) transactions involving the offer or sale of
securities by an issuer, provided that--
``(A) the aggregate amount sold within the previous
12-month period in reliance upon this exemption is--
``(i) $1,000,000, as such amount is
adjusted by the Commission to reflect the
annual change in the Consumer Price Index for
All Urban Consumers published by the Bureau of
Labor Statistics, or less; or
``(ii) if the issuer provides potential
investors with audited financial statements,
$2,000,000, as such amount is adjusted by the
Commission to reflect the annual change in the
Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics, or
less;
``(B) the aggregate amount sold to any investor in
reliance on this exemption within the previous 12-month
period does not exceed the lesser of--
``(i) $10,000, as such amount is adjusted
by the Commission to reflect the annual change
in the Consumer Price Index for All Urban
Consumers published by the Bureau of Labor
Statistics; and
``(ii) 10 percent of such investor's annual
income;
``(C) in the case of a transaction involving an
intermediary between the issuer and the investor, such
intermediary complies with the requirements under
section 4A(a); and
``(D) in the case of a transaction not involving an
intermediary between the issuer and the investor, the
issuer complies with the requirements under section
4A(b).''.
(b) Requirements to Qualify for Crowdfunding Exemption.--The
Securities Act of 1933 is amended by inserting after section 4 the
following:
``SEC. 4A. REQUIREMENTS WITH RESPECT TO CERTAIN SMALL TRANSACTIONS.
``(a) Requirements on Intermediaries.--For purposes of section
4(6), a person acting as an intermediary in a transaction involving the
offer or sale of securities shall comply with the requirements of this
subsection if the intermediary--
``(1) warns investors, including on the intermediary's
website used for the offer and sale of such securities, of the
speculative nature generally applicable to investments in
startups, emerging businesses, and small issuers, including
risks in the secondary market related to illiquidity;
``(2) warns investors that they are subject to the
restriction on sales requirement described under subsection
(e);
``(3) takes reasonable measures to reduce the risk of fraud
with respect to such transaction;
``(4) provides the Commission with the intermediary's
physical address, website address, and the names of the
intermediary and employees of the intermediary, and keep such
information up-to-date;
``(5) provides the Commission with continuous investor-
level access to the intermediary's website;
``(6) requires each potential investor to answer questions
demonstrating--
``(A) an understanding of the level of risk
generally applicable to investments in startups,
emerging businesses, and small issuers;
``(B) an understanding of the risk of illiquidity;
and
``(C) such other areas as the Commission may
determine appropriate by rule or regulation;
``(7) requires the issuer to state a target offering amount
and a deadline to reach the target offering amount and ensure
the third party custodian described under paragraph (10)
withholds offering proceeds until aggregate capital raised from
investors other than the issuer is no less than 60 percent of
the target offering amount;
``(8) carries out a background check on the issuer's
principals;
``(9) provides the Commission and potential investors with
notice of the offering, not later than the first day securities
are offered to potential investors, including--
``(A) the issuer's name, legal status, physical
address, and website address;
``(B) the names of the issuer's principals;
``(C) the stated purpose and intended use of the
proceeds of the offering sought by the issuer; and
``(D) the target offering amount and the deadline
to reach the target offering amount;
``(10) outsources cash-management functions to a qualified
third party custodian, such as a broker or dealer registered
under section 15(b)(1) of the Securities Exchange Act of 1934
or an insured depository institution;
``(11) maintains such books and records as the Commission
determines appropriate;
``(12) makes available on the intermediary's website a
method of communication that permits the issuer and investors
to communicate with one another;
``(13) provides the Commission with a notice upon
completion of the offering, which shall include the aggregate
offering amount and the number of purchasers; and
``(14) does not offer investment advice.
``(b) Requirements on Issuers if No Intermediary.--For purposes of
section 4(6), an issuer who offers or sells securities without an
intermediary shall comply with the requirements of this subsection if
the issuer--
``(1) warns investors, including on the issuer's website,
of the speculative nature generally applicable to investments
in startups, emerging businesses, and small issuers, including
risks in the secondary market related to illiquidity;
``(2) warns investors that they are subject to the
restriction on sales requirement described under subsection
(e);
``(3) takes reasonable measures to reduce the risk of fraud
with respect to such transaction;
``(4) provides the Commission with the issuer's physical
address, website address, and the names of the principals and
employees of the issuers, and keeps such information up-to-
date;
``(5) provides the Commission with continuous investor-
level access to the issuer's website;
``(6) requires each potential investor to answer questions
demonstrating--
``(A) an understanding of the level of risk
generally applicable to investments in startups,
emerging businesses, and small issuers;
``(B) an understanding of the risk of illiquidity;
and
``(C) such other areas as the Commission may
determine appropriate by rule or regulation;
``(7) states a target offering amount and ensures that the
third party custodian described under paragraph (9) withholds
offering proceeds until the aggregate capital raised from
investors other than the issuer is no less than 60 percent of
the target offering amount;
``(8) provides the Commission with notice of the offering,
not later than the first day securities are offered to
potential investors, including--
``(A) the stated purpose and intended use of the
proceeds of the offering sought by the issuer; and
``(B) the target offering amount and the deadline
to reach the target offering amount;
``(9) outsources cash-management functions to a qualified
third party custodian, such as a broker or dealer registered
under section 15(b)(1) of the Securities Exchange Act of 1934
or an insured depository institution;
``(10) maintains such books and records as the Commission
determines appropriate;
``(11) makes available on the issuer's website a method of
communication that permits the issuer and investors to
communicate with one another;
``(12) does not offer investment advice;
``(13) provides the Commission with a notice upon
completion of the offering, which shall include the aggregate
offering amount and the number of purchasers; and
``(14) discloses to potential investors, on the issuer's
website, that the issuer has an interest in the issuance.
``(c) Verification of Income.--For purposes of section 4(6), an
issuer or intermediary may rely on certifications as to annual income
provided by the person to whom the securities are sold to verify the
investor's income.
``(d) Information Available to States.--The Commission shall make
the notices described under subsections (a)(9), (a)(13), (b)(8), and
(b)(13) and the information described under subsections (a)(4) and
(b)(4) available to the States.
``(e) Restriction on Sales.--With respect to a transaction
involving the issuance of securities described under section 4(6), a
purchaser may not transfer such securities during the 1-year period
beginning on the date of purchase, unless such securities are sold to--
``(1) the issuer of such securities; or
``(2) an accredited investor.
``(f) Construction.--
``(1) No registration as broker.--With respect to a
transaction described under section 4(6) involving an
intermediary, such intermediary shall not be required to
register as a broker under section 15(a)(1) of the Securities
Exchange Act of 1934 solely by reason of participation in such
transaction.
``(2) No preclusion of other capital raising.--Nothing in
this section or section 4(6) shall be construed as preventing
an issuer from raising capital through methods not described
under section 4(6).''.
(c) Rulemaking.--Not later than 180 days after the date of the
enactment of this Act, the Securities and Exchange Commission shall
issue such rules as may be necessary to carry out section 4A of the
Securities Act of 1933. In issuing such rules, the Commission shall
consider the costs and benefits of the action.
(d) Disqualification.--Not later than 180 days after the date of
the enactment of this Act, the Securities and Exchange Commission shall
by rule or regulation establish disqualification provisions under which
an issuer shall not be eligible to utilize the exemption under section
4(6) of the Securities Act of 1933 based on the disciplinary history of
the issuer or its predecessors, affiliates, officers, directors, or
persons fulfilling similar roles. The Commission shall also establish
disqualification provisions under which an intermediary shall not be
eligible to act as an intermediary in connection with an offering
utilizing the exemption under section 4(6) of the Securities Act of
1933 based on the disciplinary history of the intermediary or its
predecessors, affiliates, officers, directors, or persons fulfilling
similar roles. Such provisions shall be substantially similar to the
disqualification provisions contained in the regulations adopted in
accordance with section 926 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (15 U.S.C. 77d note).
SEC. 302. EXCLUSION OF CROWDFUNDING INVESTORS FROM SHAREHOLDER CAP.
Section 12(g)(5) of the Securities Exchange Act of 1934 (15 U.S.C.
78l(g)(5)) is amended--
(1) by striking ``(5) For the purposes'' and inserting:
``(5) Definitions.--
``(A) In general.--For the purposes''; and
(2) by adding at the end the following:
``(B) Exclusion for persons holding certain
securities.--For purposes of this subsection,
securities held by persons who purchase such securities
in transactions described under section 4(6) of the
Securities Act of 1933 shall not be deemed to be `held
of record'.''.
SEC. 303. PREEMPTION OF STATE LAW.
(a) In General.--Section 18(b)(4) of the Securities Act of 1933 (15
U.S.C. 77r(b)(4)) is amended--
(1) by redesignating subparagraphs (C) and (D) as
subparagraphs (E) and (F), respectively; and
(2) by inserting after subparagraph (B) the following:
``(C) section 4(6);''.
(b) Clarification of the Preservation of State Enforcement
Authority.--
(1) In general.--The amendments made by subsection (a)
relate solely to State registration, documentation, and
offering requirements, as described under section 18(a) of
Securities Act of 1933 (15 U.S.C. 77r(a)), and shall have no
impact or limitation on other State authority to take
enforcement action with regard to an issuer, intermediary, or
any other person or entity using the exemption from
registration provided by section 4(6) of such Act.
(2) Clarification of state jurisdiction over unlawful
conduct of intermediaries, issuers, and custodians.--Section
18(c)(1) of the Securities Act of 1933 is amended by striking
``with respect to fraud or deceit, or unlawful conduct by a
broker or dealer, in connection with securities or securities
transactions.'' and inserting the following: ``, in connection
with securities or securities transactions, with respect to--
``(A) fraud or deceit;
``(B) unlawful conduct by a broker or dealer; and
``(C) with respect to a transaction described under
section 4(6), unlawful conduct by an intermediary,
issuer, or custodian.''.
TITLE IV--SMALL COMPANY CAPITAL FORMATION
SEC. 401. AUTHORITY TO EXEMPT CERTAIN SECURITIES.
(a) In General.--Section 3(b) of the Securities Act of 1933 (15
U.S.C. 77c(b)) is amended--
(1) by striking ``(b) The Commission'' and inserting the
following:
``(b) Additional Exemptions.--
``(1) Small issues exemptive authority.--The Commission'';
and
(2) by adding at the end the following:
``(2) Additional issues.--The Commission shall by rule or
regulation add a class of securities to the securities exempted
pursuant to this section in accordance with the following terms
and conditions:
``(A) The aggregate offering amount of all
securities offered and sold within the prior 12-month
period in reliance on the exemption added in accordance
with this paragraph shall not exceed $50,000,000.
``(B) The securities may be offered and sold
publicly.
``(C) The securities shall not be restricted
securities within the meaning of the Federal securities
laws and the regulations promulgated thereunder.
``(D) The civil liability provision in section
12(a)(2) shall apply to any person offering or selling
such securities.
``(E) The issuer may solicit interest in the
offering prior to filing any offering statement, on
such terms and conditions as the Commission may
prescribe in the public interest or for the protection
of investors.
``(F) The Commission shall require the issuer to
file audited financial statements with the Commission
annually.
``(G) Such other terms, conditions, or requirements
as the Commission may determine necessary in the public
interest and for the protection of investors, which may
include--
``(i) a requirement that the issuer prepare
and electronically file with the Commission and
distribute to prospective investors an offering
statement, and any related documents, in such
form and with such content as prescribed by the
Commission, including audited financial
statements, a description of the issuer's
business operations, its financial condition,
its corporate governance principles, its use of
investor funds, and other appropriate matters;
and
``(ii) disqualification provisions under
which the exemption shall not be available to
the issuer or its predecessors, affiliates,
officers, directors, underwriters, or other
related persons, which shall be substantially
similar to the disqualification provisions
contained in the regulations adopted in
accordance with section 926 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act
(15 U.S.C. 77d note).
``(3) Limitation.--Only the following types of securities
may be exempted under a rule or regulation adopted pursuant to
paragraph (2): equity securities, debt securities, and debt
securities convertible or exchangeable to equity interests,
including any guarantees of such securities.
``(4) Periodic disclosures.--Upon such terms and conditions
as the Commission determines necessary in the public interest
and for the protection of investors, the Commission by rule or
regulation may require an issuer of a class of securities
exempted under paragraph (2) to make available to investors and
file with the Commission periodic disclosures regarding the
issuer, its business operations, its financial condition, its
corporate governance principles, its use of investor funds, and
other appropriate matters, and also may provide for the
suspension and termination of such a requirement with respect
to that issuer.
``(5) Adjustment.--Not later than 2 years after the date of
enactment of the Small Company Capital Formation Act of 2011
and every 2 years thereafter, the Commission shall review the
offering amount limitation described in paragraph (2)(A) and
shall increase such amount as the Commission determines
appropriate. If the Commission determines not to increase such
amount, it shall report to the Committee on Financial Services
of the House of Representatives and the Committee on Banking,
Housing, and Urban Affairs of the Senate on its reasons for not
increasing the amount.''.
(b) Treatment as Covered Securities for Purposes of NSMIA.--Section
18(b)(4) of the Securities Act of 1933 (as amended by section 303) (15
U.S.C. 77r(b)(4)) is further amended by inserting after subparagraph
(C) (as added by such section) the following:
``(D) a rule or regulation adopted pursuant to
section 3(b)(2) and such security is--
``(i) offered or sold on a national
securities exchange; or
``(ii) offered or sold to a qualified
purchaser, as defined by the Commission
pursuant to paragraph (3) with respect to that
purchase or sale;''.
(c) Conforming Amendment.--Section 4(5) of the Securities Act of
1933 is amended by striking ``section 3(b)'' and inserting ``section
3(b)(1)''.
SEC. 402. STUDY ON THE IMPACT OF STATE BLUE SKY LAWS ON REGULATION A
OFFERINGS.
The Comptroller General shall conduct a study on the impact of
State laws regulating securities offerings, or ``Blue Sky laws'', on
offerings made under Regulation A (17 CFR 230.251 et seq.). The
Comptroller General shall transmit a report on the findings of the
study to the Committee on Financial Services of the House of
Representatives, and the Committee on Banking, Housing, and Urban
Affairs of the Senate not later than 3 months after the date of
enactment of this Act.
TITLE V--PRIVATE COMPANY FLEXIBILITY AND GROWTH
SEC. 501. THRESHOLD FOR REGISTRATION.
Section 12(g)(1)(A) of the Securities Exchange Act of 1934 (15
U.S.C. 78l(g)(1)(A)) is amended to read as follows:
``(A) within 120 days after the last day of its first
fiscal year ended on which the issuer has total assets
exceeding $10,000,000 and a class of equity security (other
than an exempted security) held of record by either--
``(i) 2,000 persons, or
``(ii) 500 persons who are not accredited investors (as
such term is defined by the Commission), and''.
SEC. 502. EMPLOYEES.
Section 12(g)(5) of the Securities Exchange Act of 1934 (15 U.S.C.
78l(g)(5)), as amended by section 302, is amended in subparagraph (A)
by adding at the end the following: ``For purposes of determining
whether an issuer is required to register a security with the
Commission pursuant to paragraph (1), the definition of `held of
record' shall not include securities held by persons who received the
securities pursuant to an employee compensation plan in transactions
exempted from the registration requirements of section 5 of the
Securities Act of 1933.''.
SEC. 503. COMMISSION RULEMAKING.
The Securities and Exchange Commission shall revise the definition
of ``held of record'' pursuant to section 12(g)(5) of the Securities
Exchange Act of 1934 (15 U.S.C. 78l(g)(5)) to implement the amendment
made by section 502. The Commission shall also adopt safe harbor
provisions that issuers can follow when determining whether holders of
their securities received the securities pursuant to an employee
compensation plan in transactions that were exempt from the
registration requirements of section 5 of the Securities Act of 1933.
SEC. 504. COMMISSION STUDY OF ENFORCEMENT AUTHORITY UNDER RULE 12G5-1.
The Securities and Exchange Commission shall examine its authority
to enforce Rule 12g5-1 to determine if new enforcement tools are needed
to enforce the anti-evasion provision contained in subsection (b)(3) of
the rule, and shall, not later than 120 days after the date of
enactment of this Act transmit its recommendations to Congress.
TITLE VI--CAPITAL EXPANSION
SEC. 601. SHAREHOLDER THRESHOLD FOR REGISTRATION.
(a) Amendments to Section 12 of the Securities Exchange Act of
1934.--Section 12(g) of the Securities Exchange Act of 1934 (15 U.S.C.
78l(g)) is further amended--
(1) in paragraph (1), by amending subparagraph (B) to read
as follows:
``(B) in the case of an issuer that is a bank or a bank
holding company, as such term is defined in section 2 of the
Bank Holding Company Act of 1956 (12 U.S.C. 1841), not later
than 120 days after the last day of its first fiscal year ended
after the effective date of this subsection, on which the
issuer has total assets exceeding $10,000,000 and a class of
equity security (other than an exempted security) held of
record by 2,000 or more persons,''; and
(2) in paragraph (4), by striking ``three hundred'' and
inserting ``300 persons, or, in the case of a bank or a bank
holding company, as such term is defined in section 2 of the
Bank Holding Company Act of 1956 (12 U.S.C. 1841), 1,200
persons''.
(b) Amendments to Section 15 of the Securities Exchange Act of
1934.--Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78o(d)) is amended, in the third sentence, by striking ``three
hundred'' and inserting ``300 persons, or, in the case of bank or a
bank holding company, as such term is defined in section 2 of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841), 1,200 persons''.
SEC. 602. RULEMAKING.
Not later than 1 year after the date of enactment of this Act, the
Securities and Exchange Commission shall issue final regulations to
implement this title and the amendments made by this title.
TITLE VII--OUTREACH ON CHANGES TO THE LAW
SEC. 701. OUTREACH BY THE COMMISSION.
The Securities and Exchange Commission shall provide online
information and conduct outreach to inform small and medium sized
businesses, women owned businesses, veteran owned businesses, and
minority owned businesses of the changes made by this Act.
Passed the House of Representatives March 8, 2012.
Attest:
Clerk.
112th CONGRESS
2d Session
H. R. 3606
_______________________________________________________________________
AN ACT
To increase American job creation and economic growth by improving
access to the public capital markets for emerging growth companies.