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Upcoming Committee Vote on Jobs Bills an Opportunity for Bipartisan “Common Ground,” Says Chairman Bachus

Washington, October 20, 2011 - The Financial Services Committee will vote on a package of bills next week that will reduce Securities and Exchange Commission (SEC) regulatory barriers to small business growth and job creation.

All five bills the Committee will mark up on Wednesday represent an opportunity for Republicans and Democrats to find “common ground” on ways to create jobs, said Chairman Spencer Bachus.

“Republicans and Democrats have expressed support for these ideas.  Even President Obama has come out in support of cutting red tape that prevents many start-up companies from raising capital and going public.  These bills will reduce unnecessary regulations that are stifling small companies and will allow entrepreneurs more freedom to access the capital they need to hire workers and grow their businesses,” Chairman Bachus said.

Underscoring the bipartisan support most of the bills have attracted, three of the five were approved by voice vote when the Subcommittee on Capital Markets and Government Sponsored Enterprises considered them on Oct. 5.

The Committee is scheduled to consider the following bills on Wednesday at 10 a.m.:

H.R. 2940, the Access to Capital for Job Creators Act, sponsored by Rep. Kevin McCarthy (R-CA)
H.R. 2940 removes the regulatory ban that prevents small, privately held companies from using advertisements to solicit investors.

Background:  An SEC regulation allows companies to raise capital as long as they do not market their securities through general solicitations or advertising.  This prohibition has been interpreted to mean that potential investors must have an existing relationship with the company.

Requiring potential investors to have an existing relationship with the company unnecessarily limits the pool of investors and severely restricts the ability of small companies to raise capital.

H.R. 2930, the Entrepreneur Access to Capital Act, sponsored by Rep. Patrick McHenry (R-NC)
H.R. 2930 removes SEC restrictions on “crowdfunding” so entrepreneurs can raise capital from a large pool of small investors who may or may not be considered “accredited” by the SEC.

Background:  “Crowdfunding” is a technique that raises money to fund a business through relatively small dollar contributions from a large number of people through social networking, either in-person or on the Internet.  SEC rules prohibiting such general solicitation are a barrier to crowdfunding.

H.R. 2930 permits “crowdfunding” to finance new businesses by allowing companies to accept and pool donations up to $5 million without having to register with the SEC.

H.R. 1965, sponsored by Rep. Jim Himes (D-CT)
H.R. 1965 would raise the bank shareholder threshold for SEC registration from 500 to 2,000.  The threshold has not been adjusted since 1964.

Background:  Companies that have $10 million in assets and 500 shareholders are currently required to register with the SEC.  These companies are therefore subject to the SEC’s reporting requirements.  While the asset threshold has been increased over the years to $10 million from the $1 million level initially set in 1964, the 500 shareholder requirement has never been updated.

H.R. 1965 updates the federal securities laws to ensure that smaller community banks are not required to register with the SEC and comply with burdensome reporting requirements that are intended for larger corporations. 

H.R. 2167, the Private Company Flexibility and Growth Act, sponsored by Rep. David Schweikert (R-AZ)
H.R. 2167 raises the threshold for mandatory registration with the SEC from 500 shareholders to 1,000 shareholders for all companies.  It also excludes accredited investors and securities held by shareholders who receive such securities under employee compensation plans from the 1,000 shareholder threshold.

Background:  Section 12(g) of the Securities Exchange Act of 1934 requires issuers to register equity securities with the SEC if those securities are held by 500 or more shareholders and the company has total assets of more than $10 million.  After a company registers with the SEC under Section 12(g), it must comply with all of the Exchange Act’s reporting requirements.

The current threshold discourages companies from providing stock option-based compensation to employees, removing one of the great economic incentives used to attract well-qualified employees to small business startups.

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