The Emerging Growth Company under the JOBS Act by staff103


									The Emerging Growth Company under the JOBS Act – Securities
Lawyer 101- Go Public Blog

Posted on April 28, 2012 by Brenda Hamilton, Attorney

                              On April 5, 2012, President Obama signed the
Jumpstart Our Business Startups Act (the “JOBS Act”) into law. Title I of the
JOBS Act, which became operative as soon as the JOBS Act was signed into law,
amends the Securities Act of 1933 (Securities Act) and the Securities Exchange
Act of 1934 (Exchange Act) and creates the “emerging growth company” as a
new category of issuer under federal securities laws. The Act made significant
changes which will affect issuers who go public direct, the IPO process including
direct public offerings, IPO registration statement disclosure requirements and
post-IPO reporting, and other requirements for emerging growth companies.
These changes became effective upon enactment of the JOBS Act without
further rule-making by the SEC or other organizations.

Portions of these proposals will affect the legal and compliance matters
applicable to virtually all issuers including SEC reporting and non-reporting
issuers, issuers who go public direct and conduct direct public offerings, issuers
who engage in reverse mergers with public shells and private companies who
undertake securities offerings.

An emerging growth company is defined as an issuer with aggregate annual
gross revenues of less than $1 billion during its most recent fiscal year. These
amendments are intended to lessen the requirements for emerging growth
companies to raise capital from the public by reducing the disclosure
requirements for issuers conducting an initial public offering. The new
regulatory requirements for emerging growth companies will be phased in over
a period of up to five years after an initial public offering (“IPO”).
An issuer that is an emerging growth company on the first day of its most
recent fiscal year continues to be an emerging growth company until the earlier

● the last day of the fiscal year in which the issuer’s gross revenues exceeded
$1 billion;

● the fifth anniversary of the effective date of the issuer’s registration statement
under the Securities Act;

● the date that the issuer has, during the previous three-year period, issued
nonconvertible debt securities exceeding $1 billion in the aggregate; or

● the date that the issuer qualifies as a large accelerated filer.

The JOBS Act lessens requirements of the securities laws for emerging growth
companies as follows:

● Emerging growth companies may provide only two years of audited financial
statements rather than three in their IPO registration statement;

● Emerging growth companies may submit a “draft” Form S-1 to the SEC for
confidential review instead of filing it publicly on the SEC’s Edgar database. A
Form S-1 that is confidentially submitted must be substantially complete,
including all required financial statements and signed audit reports. A
confidential submission does not have to be filed publicly until 21 days before
the issuer commences a road show;

● The restrictions on communications of an IPO are reduced to permit any
individual authorized to act on behalf of an emerging growth company to
engage in oral or written communications with qualified institutional buyers or
institutional accredited investors to “test the waters”; and

● The JOBS Act removes the ban on the distribution of research reports by
brokers or dealers in connection with the emerging growth company’s IPO. The
Act also removes restrictions on who may arrange for communications between
securities analysts and investors, and permits securities analysts to participate
in communications with an emerging growth company’s management along with
broker or dealer representatives.

For as long as an issuer is an emerging growth company, it is:
● exempt from the requirement to obtain an auditor attestation report on its
internal control over financial reporting as required by the Sarbanes-Oxley Act
of 2002;

● not required to comply with any new or revised financial accounting
requirements until the date that a private company is required to comply with
the new or revised accounting standard;

● not required to comply with mandatory audit firm rotation or a supplement to
the auditor’s report;

● not required to comply with any additional PCAOB rules adopted after the
JOBS Act’s enactment date unless the SEC determines and adopts rules
requiring such compliance;

● exempt from the Say-on-Pay, Say-on-Frequency and Say-on-Parachute
Requirements mandated by the Dodd-Frank Act that companies seek
stockholder approval of an advisory vote on their executive compensation
arrangements, including golden parachute compensation until 1 to 3 years after
the issuer ceases to be an emerging growth company;

● exempt from the requirement to provide golden parachute disclosures and to
hold a Say-on-Golden parachute vote;

● exempt from requirements of the Dodd-Frank Act (not yet effective), which
requires disclosures about the relationship between executive compensation and
financial performance and the ratio between CEO compensation and median
employee compensation; and

● permitted to provide reduced executive compensation disclosure              in
accordance with the SEC’s rules applicable to smaller reporting companies.

In addition to the changes described above, the JOBS Act requires the SEC to
conduct a review of Regulation S-K which contains the disclosure rules
applicable to both offerings under the Securities Act such as direct public
offerings and periodic reporting under the Exchange Act within 180 days
following the enactment of the JOBS Act with rule-making proposals to simplify
the registration process and reduce the costs and other burdens on emerging
growth companies.

By reducing the time, cost and complexity of going public, the JOBS Act will
encourage eligible companies to pursue underwritten and direct public offerings.
Additional SEC rulemaking and guidance relating to the matters described above
may result in further changes to the rules and regulations affecting both issuers
who go public direct and those who use underwriters. Until this occurs, the
practical impact of these changes is unclear.

For more information about the JOBS Act please visit our blog post at:

For further information about this article, please contact Brenda Hamilton,
Securities Attorney at 101 Plaza Real S, Suite 201 S, Boca Raton Florida, (561)
416-8956,      by    email     at      or    visit This memorandum is provided as a general
informational service to clients and friends of Hamilton & Associates Law Group
and should not be construed as, and does not constitute, legal and compliance
advice on any specific matter, nor does this message create an attorney-client
relationship. For more information concerning the rules and regulations affecting
the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement
offerings, Regulation A, Rule 504 offerings, Rule 144, SEC reporting
requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing,
OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks,
reverse mergers, public shells, go public direct transactions and direct public
offerings or please contact Hamilton and Associates at (561) 416-8956 or by
email a Please note that the prior results
discussed herein do not guarantee similar outcomes.

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