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The new law is designed to give fast-growing startups like biotech and tech companies a boost.
President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act into law today, CNN Money reported. The JOBS Act is designed to give fast-growing startups like biotech and tech companies a boost.
The bill got bipartisan congressional support, but it was only a small part of a larger jobs bill Obama promoted last year, the Los Angeles Times reported.
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“I've always said that the true engine of job creation in this country is the private sector, not the government,” Obama said at the Rose Garden signing ceremony, according to the LA Times. “For startups and small businesses, this bill is a potential game changer."
The JOBS Act gives small firms more access to fundraising and investors and lightens their regulatory load, CNN Money reported.
The law allows a company to raise up to $1 million from actual investors via crowdfunding, according to CNN Money. To protect investors, individuals with a net worth of less than $100,000 are only permitted to invest 5 percent of their annual income, or $2,000, whichever is higher, while higher net-worth investors can chip in up to 10 percent of their income.
The new law also allows companies to advertise to the general public about investment opportunities, CNN Money reported.
"That's huge. When you're talking about a small business with 30 employees, you don't have time to establish those connections to bring in chunks of money," Molly Brogan, spokeswoman for the National Small Business Administration, which lobbied for the law's passage, told CNN Money.
The JOBS Act eases the regulatory burden of emerging growth companies in several ways, Bloomberg Businessweek reported. For one, it allows startups with less than $1 billion in annual revenue to take five years to fully comply with all accounting rules when they go public. And the firms need only report two years of audited financial statements when they file to go public, down from three to five years’ worth before.
If the law had existed when LinkedIn, Pandora and Orbitz Worldwide had gone public, those companies could have taken advantage of these benefits, Bloomberg Businessweek noted.
Consumer advocates have warned that the new law could undermine protections for private investors, the LA Times reported.
The law is not expected to fully take effect until 2013, after the SEC drafts new rules, the LA Times reported.
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