Jobs Act 101What Is An Emerging Growth Company?
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. Read More
Accredited Investor Status | Going Public Lawyers
Regulation D under the Securities Act of 1933,
as amended (the “Securities Act”), sets forth a safe harbor from the registration requirements of the Securities Act for certain private placements of securities. In connection with these exemptions, offerings made in reliance upon Regulation D, Rule 504, 505 and 506 can be made to up to 35 non-accredited investors and an unlimited number of “accredited” investors.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) amended the definition of an “accredited” investor to exclude the value of an investor’s primary residence when determining whether the net worth of that person (or joint net worth with his or her spouse) exceeds the $1 million net worth test. The amended rule, established by Dodd Frank became effective on February 27, 2012.
Under the amended rule, for purposes of calculating net worth in determining status of accredited investors, the value of an investor’s primary residence may not be included. The rule also excludes the value of any mortgage or other debt secured by an investor’s primary residence from being deducted as a liability for an investor’s net worth provided that the debt does not exceed the fair market value of the primary residence. Read More
Rule 144 l The Reverse Merger Blacklist
Traditionally, private companies go public by registering an offering under the Securities Act of 1933, as amended (the “Securities Act”). Another way for private companies to go public is through a Reverse Merger (“Reverse Merger”) with a publicly traded company. In a Reverse Merger, a private operating company or its business operations are acquired by, or merge into a publicly traded company, often inactive with negligible operations and assets. Rule 144 of the Securities Act provides a safe harbor from the registration provisions of the Securities Act for resales of restricted and control securities if the conditions of the rule are met (rule 144 is not available to an issuer of securities). While certain amendments to Rule 144 lessened its requirements, for reverse merger issuers, the opposite was true.
Rule 144 was amended on February 15, 2008. One of the key changes to the rule was to prohibit its use by shareholders of an issuer who was at any time a shell company (“Shell Company”). In its adopting release to Rule 144, the SEC explained the reasons why sales of securities by Shell Companies are excluded from the safe harbor of Rule 144. Shell Companies historically have been vehicles for securities fraud in reverse mergers transactions. Read More
How To Use a Registration Statement When Going Public
Private companies going public with a registration statement (“Registration Statement”) under the Securities Act of 1933, as amended (the Securities Act”). When a Registration Statement is used, the company files it with the SEC, typically on Form S-1 registering securities it plans to sell or securities held by its shareholders (“Selling Shareholders”). Companies going public should anticipate SEC comments to the registration statement. The SEC reviews and often comments on the disclosures provided in the Registration Statement. Upon confirmation that the SEC is satisfied that the disclosures satisfy the disclosure requirements of the securities laws, it will declare the Registration Statement effective and the securities may be sold. Read More
What Is The Section 4(1) Exemption?
Rule 144 (“SEC Rule 144”) under the Securities Act of 1933 (“Securities Act”) provides a safe harbor from the registration provisions of the Securities Act for resales of restricted and control securities by persons other than the issuer if all conditions of the rule are complied with. Section 4(1) of the Securities Act provides an exemption for a transaction “by a person other than an issuer, underwriter, or dealer.”
If the requirements of Rule 144 are met, the seller will not be deemed an underwriter and will be entitled to rely upon the safe harbor of Rule 144 to resell their securities.
Section 4(1) is often referred to as the “ordinary trading” exemption. The main obstacle to the use of Section 4(1) is whether the seller is an underwriter under Section 2(11) of the Securities Act and whether the resale involves a distribution of securities. Read More