Jumpstart Our Business Startups Act (JOBS Act): Summary of the main regulations

If you’ve ever searched for ways to get funds for your business, you’ve likely encountered the “JOBS Act”. There’s a lot of talk about it, but the explanation isn’t always concise and the definition isn’t totally clear. If you want to understand the concept in a simple way and find out how this tool can help you, you’ve come to the right place. Read on and find out all about the JOBS Act.

What is the Jobs Act? A simple explanation

The Jumpstart Our Business Startups Act (JOBS Act) was signed in 2012 to make it easier for businesses to raise capital from a broad pool of investors.

The goal was to democratize capital by opening up investment opportunities not just to wealthy individuals but also to everyday people. This landmark legislation allows businesses more flexibility, control, and access to funds, fostering innovation and job creation.

The JOBS Act was created to make it easier for businesses to raise funds from a wider pool of investors. 

Key JOBS Act Regulations

• Regulation D (RegD 506c): Allows unlimited fundraising but restricts participation to accredited investors.
• Regulation Crowdfunding (RegCF): Welcomes both accredited and non-accredited investors, with companies allowed to raise up to $5 million per year.
• Regulation A+ (RegA+): Companies can raise up to $75 million annually, without investment limits for non-accredited investors.

Now that we have a clear understanding of the definition of the JOBS Act, let’s understand in a deeper way what each one of the regulations is and its limitations.

What is Regulation D (RegD 506c)?

Regulation D, specifically the 506c rule, is an important framework for companies seeking to raise capital from accredited investors.

• Companies can raise unlimited funds without needing to register with the SEC before the raise.
• Investors must be accredited, and there’s a 1-year lock before they can sell their shares.
• Often used by startups or businesses seeking large amounts of capital quickly.
• Secondary trading (selling shares) is limited, and companies must comply with specific filing and due diligence requirements.

Understanding Regulation Crowdfunding (RegCF)

Regulation Crowdfunding (RegCF) provides opportunities for a wider range of investors, including both accredited and non-accredited individuals, to participate in funding companies.

• Companies can raise up to $5 million every year.
• There are limits on how much non-accredited investors can invest, unless they provide financial details.
• Shares can be sold after 12 months without restrictions.
• This is popular for smaller companies looking to engage a broad range of investors.

Regulation A+ explained

Regulation A+ is a highly flexible option for companies looking to raise significant capital while involving both accredited and non-accredited investors.

• Allows companies to raise up to $75 million every year 
• There’s no holding period, so shares can be sold freely right away.
• It’s a great option for companies that want to raise larger sums of money while still including non-accredited investors.
• The process requires filing with the SEC, but there are fewer restrictions on share sales compared to RegD.

What’s the difference between each JOBS Act regulation?

As we’ve seen, the JOBS Act offers several regulations for businesses looking to raise capital, each with distinct rules and investor requirements. 

Understanding the differences between RegD 506c, RegCF, and RegA+ is key for both companies and investors. Here’s a breakdown of who can invest, how much capital can be raised, investor limits, and the regulatory obligations for each.

JOBS Act overview

Eye on the Additional Details on Reporting Obligations!

When raising capital under the JOBS Act regulations, it’s essential to understand the varying reporting requirements companies must follow. Whether you’re pursuing a Reg D 506(c), RegCF, or RegA+ offering, staying compliant post-raise is just as critical as the raise itself. Below is an overview of the reporting obligations tied to each of these regulations:

• RegD 506c: Does not require companies to submit ongoing reports to the SEC after the capital raise is completed. Companies need to submit Form D within 15 days of closing the offering but are not required to provide updates thereafter.

• RegCF: Companies must file an annual report (Form C-AR) to provide updates to the SEC and investors. They also need to file Form C-U for material changes during the offering, and Form C-TR to terminate an offering.

• RegA+: Companies must submit annual reports (Form 1-K) to the SEC. In addition, they are required to file semi-annual reports (Form 1-SA) and update reports for significant changes (Form 1-U).

FAQ: JOBS Act and Small Business Crowdfunding

What are the benefits of the JOBS Act for small businesses?

The JOBS Act provides small businesses with easier access to capital by allowing them to raise funds from a wider pool of investors, including non-accredited individuals. This opens the door for businesses to secure the financing they need while building a strong community of supporters.

What are the JOBS Act crowdfunding rules?

Under Regulation Crowdfunding (RegCF), businesses can raise up to $5 million annually from both accredited and non-accredited investors. Companies must file a Form C with the SEC and abide by specific reporting requirements to maintain transparency.

How can startups benefit from the JOBS Act?

Startups benefit by accessing capital that would otherwise be difficult to obtain. Regulations like RegA+ allow businesses to raise up to $75 million per year, giving startups the flexibility to grow quickly while involving a broad base of investors.

What are the JOBS Act requirements for crowdfunding?

Under Regulation Crowdfunding (RegCF), businesses must comply with SEC filing obligations such as submitting Form C before raising funds. Non-accredited investors are also limited in how much they can invest unless they provide detailed financial information.

How does the JOBS Act impact investors?

The JOBS Act gives investors more control and flexibility through secondary marketplaces, allowing them to sell shares after a holding period. This increases liquidity and reduces the risks associated with long-term, private investments.

What is a Secondary Marketplace?

A secondary marketplace is where investors can buy and sell shares of a company after the initial capital raise. Think of it like a stock market for private companies. This allows investors to sell their shares without waiting for the company to go public or have an exit event like a merger.

Secondary Marketplaces in RegD, RegCF, and RegA+:

1. RegD (506c):
   • Who Can Participate: Only accredited investors (wealthy or financially qualified people) can participate in the secondary marketplace.
   • Restrictions: Shares are usually locked for 1 year, meaning investors can’t sell them for 12 months after they acquire them.
   • Requirements: To sell shares, companies must comply with certain regulations like Blue Sky registration (which governs the sale of securities at the state level), and the National Securities Manual.
2. RegCF:
   • Who Can Participate: Both accredited and non-accredited investors can participate, meaning everyday people can buy and sell shares in the secondary market.
   • Free Trading: After a 12-month holding period, shares can be traded freely on a secondary marketplace.
   • Requirements: Companies must file similar documentation, like the Blue Sky registration, to ensure compliance when shares are traded.
3. RegA+:
   • Who Can Participate: Similar to RegCF, both accredited and non-accredited investors can trade shares in the secondary market.
   • Free Trading: Shares can be traded immediately after being acquired, without a holding period.
   • Requirements: Like the other regulations, companies need to follow Blue Sky laws and other guidelines to ensure trades are legal.

Key Benefits of Secondary Marketplaces:

• Liquidity: Investors can get their money back without waiting for the company to go public or get acquired. This makes private investments more attractive.
• Flexibility: Both small investors (in RegCF and RegA+) and wealthy investors (in RegD) can sell their shares when they want, giving them more control over their investments.

In summary, secondary marketplaces offer a way for investors to exit their investments and for new investors to buy shares in a company. The rules and restrictions depend on the regulation under which the shares were initially sold, but they all aim to provide liquidity to investors.

The JOBS Act: Empowering Businesses, Engaging Communities

The JOBS Act has undeniably transformed the landscape of business funding, offering multiple avenues for both companies and investors to thrive. By opening up investment opportunities to a wider range of individuals, the act has democratized capital raising, making it accessible to small businesses, startups, and even everyday investors. 

With regulations like RegD, RegCF, and RegA+ offering different levels of flexibility and investor involvement, businesses now have tailored options to meet their capital needs. 

If you’re a company looking to grow or an investor searching for fresh possibilities, the JOBS Act opens doors for innovation, community involvement, and financial progress. As companies continue to use these regulations, understanding how each option works will be key to staying informed about the area of regulations and secondary markets.

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* Disclaimer: This article was last reviewed in October 2024. Please note that regulatory landscapes and requirements are subject to rapid changes. The information provided here is reflective of the third quarter of 2024.