House Capital Formation Legislation: House of Representatives Passes the “JOBS and Investor Confidence Act of 2018”—a Package of Bipartisan Bills Addressing Capital Formation

Sullivan & Cromwell LLP - July 24, 2018
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On July 17, the U.S. House of Representatives voted 406 to 4 to pass S. 488, the “JOBS and Investor Confidence Act of 2018,” which is “comprised of 32 individual pieces of legislation that have passed the House Financial Services Committee or the House this Congress with broad bipartisan support.”  The House Financial Services Committee characterizes the legislation as “the third and largest installment of ‘Jumpstart Our Business Startups (JOBS) Act’ legislation aimed at helping small businesses, entrepreneurs and investors by reforming our capital markets.”   Among other measures, the bill would, if enacted, “help entrepreneurs access the capital they need to launch their companies and to go and stay public,” by:

  • Expanding to all public companies certain provisions of Title I of the JOBS Act that currently allow EGCs to (1) submit draft registration statements for IPOs to the SEC for confidential review before publicly filing, and (2) “test the waters” before filing a registration statement for an IPO;
  • Modernizing the definition of “accredited investor” in Section 2(a)(15) of the Securities Act of 1933; 
  • Amending Section 404(b) of the Sarbanes-Oxley Act to extend the exemption from the requirement that a public company’s auditor attest to management’s assessment of internal controls over financial reporting to certain former EGCs with less than $50 million in annual revenues;
  • Requiring the SEC to conduct a cost-benefit analysis of the requirement that public companies use Form 10-Q for submitting quarterly reports—including the costs and benefits to investors and other market participants—as well as the expected impact of the use of alternative formats of quarterly reporting for EGCs;
  • Requiring the SEC, in consultation with FINRA, to study the direct and indirect costs associated with undertaking IPOs for small and medium-sized companies; 
  • Adding provisions designed to facilitate “demo days,” that would allow start-ups to make presentations to interested potential investors under specified conditions without violating Regulation D restrictions on general solicitation; and
  • Requiring issuers with a multi-class share structure to make certain disclosures intended to provide greater transparency regarding certain shareholders’ voting power in any proxy or consent solicitation materials.