Goodbye 500 Holder Rule?
Currently under Section 12(g)(1) of the Exchange Act, a company with more than $10 million in assets must register each class of security that is held of record by 500 or more persons and comply with the reporting requirements under Sections 13 and 15(d) of the Exchange Act. Last week, the Senate approved, by a 73-26 margin, the Jumpstart Our Business Startups Act (the “JOBS Act”). As reported by the New York Times, the House of Representatives approved the final version of the JOBS Act on Tuesday and President Obama has reportedly stated that he will sign it. If enacted, the JOBS Act will, among other things, raise the equity holder threshold from 500 to 2,000 (PDF) and relax the general solicitation and general advertising prohibition for offerings made pursuant to Rule 506 of Regulation D of the Securities Act. The purported goal of the JOBS Act is to ease access to capital and investments for entrepreneurs. Many experts, however, including SEC Chairman Mary L. Shapiro, have criticized the JOBS Act for also potentially removing important investor protections in very large companies.
OUR TAKE: Whether the JOBS Act will succeed in achieving its purposes remains to be seen. What is clear, however, is that the JOBS Act will dramatically change established securities laws, which were implemented to place restraint on how equity can be raised and to ensure that investors were provided adequate disclosures regarding the risk of an investment.