For young companies interested in going public, the JOBS Act opens up new doors. The law, signed by President Obama on April 5, 2012, stands for Jump-Start Our Business Start-Ups. It brings about the biggest change in Initial Public Offerings (IPO) regulations since 2005.
There are about 90% of companies seeking to go public that are eligible for the law’s provisions because they have less than $1 billion a year in annual revenues.
The Provisions of the JOBS Act
Under the new law, young companies…
- are allowed to file documents confidentially with the Securities and Exchange Commission (SEC).
- avoid external audits of their internal controls for a longer period of time.
- have more opportunities to communicate with securities analysts. This enables them to promote themselves with detailed research about their company that is published and distributed.
- in foreign markets seeking a confidential review to reestablish their eligibility. Asian companies especially have been closely following the results of the JOBS Act.
Some of these provisions may make initial investors skeptical. A variety of the safety measures drawn up in the Sarbanes-Oxley law of 2002 have been altered.
On the other hand, young companies who have hesitated going public are now considering taking the leap. Their confidence has grown because their is a new level of confidentiality established by the JOBS Act. In the past, any disputes with the SEC might become an advantage for their competitors and be open to public scrutiny.
The new confidential review process protects these newly emerging companies from these pitfalls. As with any new law, there are kinks to be worked out. There is an uncertainty just how the SEC will handle the changes.