Definition
The Jumpstart Our Business Startups Act (JOBS Act) is a law enacted in the United States in 2012 with the aim to stimulate economic growth by improving access to capital for small businesses. The Act eases various securities regulations to encourage funding of small businesses by facilitating the process of crowdfunding and increasing the number of shareholders a company can have before being required to register with the Securities and Exchange Commission. The JOBS Act also allows for increased use of social media and advertisements in attracting investors.
Phonetic
The phonetics of the keyword: Jumpstart our Business Startups Act (JOBS) is: /jʌmpˌstɑːrt ˈaʊər ‘bɪznəs ˈstɑːrʌps ækt (dʒɒbz)/
Key Takeaways
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- The JOBS Act, officially known as the Jumpstart Our Business Startups Act, was signed into law in 2012 with the aim of encouraging the funding of small businesses in the United States by easing various securities regulations.
- Key provisions of the JOBS Act include easing restrictions on crowdfunding, reducing reporting requirements for companies intending to go public, and allowing new forms of venture capital sourcing making it easier for small businesses to raise funds and hence stimulate economic growth.
- However, while the JOBS Act has created new opportunities for businesses seeking investment, it has also raised concerns regarding investor protection. Critics of the Act argue that by relaxing regulations around fundraising, it may increase the potential for investment scams and investor losses.
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Importance
The Jumpstart Our Business Startups Act (JOBS) is pivotal as it provides a regulatory relief for small businesses in America, aiming to stimulate economic growth by making it easier for them to raise capital. Enacted in 2012, the JOBS Act considerably reduced many federal regulations and introduced several changes to securities laws, fundamentally altering the way small companies can raise money from investors. By making exceptions for ’emerging growth companies’ in initial public offerings (IPOs) and lifting the ban on crowdfunding under certain specific conditions, it unlocks potential for entrepreneurial innovation and job creation, fostering a supportive environment for startups. It is therefore a crucial element in the financial framework of the U.S., expanding financial opportunities for small businesses and promoting economic prosperity.
Explanation
The Jumpstart Our Business Startups Act (JOBS), enacted in 2012 by the U.S. Congress, was designed with the primary purpose to stimulate business development and entrepreneurship, especially for small businesses and startups. This was largely achieved by easing several regulatory requirements relating to securities, thus making it easier for these entities to raise capital through the public market. The goal was to foster innovation, stimulate job growth and hence, boost the economy. By relaxing rules around initial public offerings, the JOBS act aimed at encouraging more private companies to go public, thereby increasing their ability to attract investment.One of the key facets of this Act is “crowdfunding,” which allows businesses, especially startups, to raise a certain amount of funding through small individual investments without the need to register the offering with the Securities and Exchange Commission (SEC). Before the JOBS Act, this was a process that was typically only available to wealthy investors and venture capitalists. The Act thus helped democratize the process, opening up investment possibilities to a wide group of individuals who, although perhaps lacking substantial wealth, may still wish to invest in startups and small businesses. Further, it also brought about new opportunities for businesses to utilize online platforms to reach a wide audience of potential investors.
Examples
1. Twitter’s IPO – In 2013, Twitter was the first major company to use the JOBS Act to file for an IPO confidentially. The Act allowed them to keep their financial records private until just before the IPO, giving them more time to prepare for public scrutiny.2. Elio Motors – This automotive startup referred to as Elio Motors became the first company to raise money under the new Regulation A+ of the JOBS Act in 2015. It allowed the company to raise up to $17 million through crowdfunding, which they used for the production of a three-wheeled vehicle.3. Groupon – In 2012, Groupon, the e-commerce giant, utilized a provision of the JOBS Act that lets companies with less than $1 billion in revenue disclose fewer financial details and skip some accounting rules. Specifically, they avoided the requirement to provide selected financial data for periods prior to the last fiscal year, which the company used to its advantage while presenting its financial situation to potential investors. Overall, these examples demonstrate how the JOBS Act has been used by companies to access money from public investors or lessen the financial disclosure burden during IPOs.
Frequently Asked Questions(FAQ)
What is the Jumpstart our Business Startups Act (JOBS)?
The Jumpstart Our Business Startups Act (JOBS) is a law that was signed in the US on April 5, 2012, to encourage the funding of small businesses by easing various securities regulations.
Why was the JOBS Act enacted?
The JOBS Act was enacted to stimulate economic growth by making it easier for small businesses to raise capital. This is achieved by reducing some regulatory requirements for these businesses, particularly those in financial securities.
What are the key provisions of the JOBS Act?
There are a few key provisions within the JOBS Act. Among them is the ability for smaller companies to go public sooner, crowdfunding provisions, and reduced disclosure requirements, allowing smaller companies to more easily raise private capital.
How does the JOBS Act relate to crowdfunding?
The JOBS Act includes a provision that allows crowdfunding, or soliciting small individual investments from a large number of people. This means that businesses can raise up to $1 million per year through this method without having to register the transaction with the SEC.
What does Emerging Growth Company mean in the context of JOBS Act?
Under the JOBS Act, an Emerging Growth Company refers to an organization with total annual gross revenue of less than $1 billion during its most recently completed fiscal year. The law provides such companies with a transition period to adjust to certain compliance requirements.
Who does the JOBS Act affect?
The JOBS Act mainly affects small businesses seeking capital, investors seeking to invest in those businesses, and crowdfunding platforms. It also has regulatory implications for the Securities and Exchange Commission (SEC).
Has the JOBS Act been successful?
The impact of the JOBS Act is subjective and depends heavily on perspective. Proponents claim it has helped startups raise capital more easily and has fostered innovation and economic growth. Critics, however, warn that reducing regulations may expose investors to higher risk.
Related Finance Terms
- Equity Crowdfunding
- Emerging Growth Companies (EGCs)
- Securities and Exchange Commission (SEC)
- Initial Public Offering (IPO)
- Private Placement
Sources for More Information
