SEC Insights - JOBS Act by Weaver

SEC Insights JOBS Act

How the JOBS Act can help emerging companies go public MAKING THE DECISION to become a publicly traded company is not easy for any company. The process can be cumbersome and expensive, and it’s not a decision that a private company makes lightly. However, the Jumpstart Our Business Startups (JOBS) Act — signed into law by President Barack Obama on April 5, 2012 — may make that decision easier for companies that meet the definition of an emerging growth company (EGC). The law is designed to increase American job creation and economic growth by improving access to capital markets for companies. The premise of the act is to somewhat reduce the financial and regulatory burden of going public and to provide EGCs with avenues of communication that did not exist under the prior rules of becoming a public company. Dale Jensen, partner-in-charge of Weaver’s public company audit practice, answers a few key questions about what companies can expect from the JOBS Act and how it can help them on their journey to going public.

What are EGCs and how will the JOBS Act impact them in their quest to go public? AS DEFINED BY THE ACT, an EGC is one that has less than $1 billion in total annual gross revenue. The act redefines the rules around accessing capital in the public markets for those companies defined as an EGC. The intent is to give them some advantages by reducing the burdens that, in the past, companies had to overcome when going public. Also, with additional changes in communications with the Securities and Exchange Commission (SEC) and certain allowable communications with qualified potential investors before filing documents, companies can better understand whether becoming public is the right choice for them.

What advantages does the JOBS Act bring to EGCs? FIRST, AN EGC MAY SUBMIT a confidential draft registration statement with the SEC before going public to get feedback and work through initial comments on a confidential basis. Because the law is so new, the SEC continues to come out with additional guidance and clarification about the process. Another advantage is that an EGC will only be required to have two years of audited financial statements, rather than the three years previously required.

SEC Insights: JOBS Act Along those lines, the JOBS Act also delays the requirement for EGCs to have an auditor’s attestation to report on internal controls for up to five years, potentially. In addition, for the implementation of new or revised financial reporting standards, EGCs will be exempt until the time when such standards are required to be implemented by private companies. Finally, there are other reporting exemptions for EGCs, such as permitting smaller reporting, scaled disclosures for executive compensation, which means significantly reduced reporting and disclosure requirements.

Will the creation of the JOBS Act lead to an increase in the number of publicly traded companies? THE REDUCED BURDEN and the new allowable communications with potential investors (qualified institutional buyers and institutional accredited investors) should enable more EGCs to become publicly traded companies. That said, the process to go public remains the same, but the reduced disclosure requirements and adjustments in the communication process with the SEC and investors should simplify the process and make it less cumbersome for companies that want to pursue the option. However, with the increase in the number of shareholders a private company may have before it will be required to file with the SEC (increased from 500 to 2,000), there may also be more opportunities for companies to remain private and raise additional capital. This could also provide an avenue for public companies that are currently below this threshold to exit the public markets.

What challenges of becoming a publicly traded company are not addressed by the JOBS Act? AN EGC NEEDS TO UNDERSTAND that even though there is a reduced cost burden of going public, it is still an expensive process. And, once the company has gone public, there are increased costs and necessary oversight related to being public. Companies also need to consider whether going public is really the right decision for them. Just because the JOBS Act simplifies the process, does not mean that companies should move forward. Companies should consider the following questions: Do you have the right organizational structure in place? Do you have the right personnel? Do you have the ability to do the necessary reporting? Are you organizationally ‘publicly fit?’ Finally, make sure you have the right partners in place—aligning with the right accounting and advisory firm and the right legal counsel is critical to a successful entrance into the public markets.

CONTACT US Dale Jensen, CPA, CFE Partner-in-Charge, Public Company Audit Practice dale.jensen@weaver.com Registration of securities can be a tedious and lengthy process. Although the SEC provides filing guidelines, there are no formal rules on how to complete the actual registration process. We will work with you to ensure that all your company filings are completed accurately, timely, and in accordance with the SEC and FASB. We can help with the following: • Registration of a public offering of securities under the Securities Act of 1933* • Registration and reporting under the Securities Exchange Act of 1934* • Extensible Business Reporting Language (XBRL) financial statement tagging in accordance with the current XBRL-US GAAP Taxonomy and all SEC regulations • Interpretation and implementation of regulations governing various filing forms (Regulations S-X, S-K, and S-B, Staff Accounting Bulletins, Codification of Financial Reporting Policies and industry guides) • Identification and communication of the SEC’s key areas of focus in recent filings and emerging SEC developments * Including, but not limited to, initial public offerings and secondary offerings

Disclaimer: This content is general in nature and is not intended to serve as accounting, legal or other professional services advice. Weaver assumes no responsibility for the reader’s reliance on this information. Before implementing any of the ideas contained in this publication, readers should consult with a professional advisor to determine whether the ideas apply to their unique circumstances. © Copyright 2015, Weaver and Tidwell, L.L.P.