What is the Jumpstart Our Business Startups Act (JOBS) Act?

Jumpstart Our Business Startups Act, commonly referred to as the acronym JOBS Act, is an act of the United States Congress that reduced regulatory requirements for small businesses from some provisions of the U.S Securities law. 

The bill allowed startup companies to have a less-strict set of disclosure for an initial public offering (IPO) and legitimized the soliciting of capital through crowdfunding over the internet.

Before the enactment of the JOBS Act, the Securities and Exchange Commission (SEC) had declared crowdfunding illegal. Also, all companies required to have minimum gross revenue of one billion dollars, and further give full disclosure on governance and internal controls before going public.

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A Little More on What is the JOBS Act 

The 2008 financial crisis was followed by a decrease in small business activity, and consequently, increased levels of U.S unemployment rates. Several congresspersons sponsored different pieces of legislation in an attempt to revitalize the economy and spur growth following the depression.

The bills that were tabled before the house included the following;

1.  Small Company Capital Formation (H.R. 1070)
2.  Access to Capital for Job Creators (H.R. 2940)

III. Private Company Flexibility and Growth (H.R. 2167)

1.  Capital Expansion (H.R. 4088)
2.  Entrepreneur Access to Capital (H.R. 2930), which inspired two other bills;

VI.CROWDFUND (Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure) Act (S.1970) and Democratizing Access to Capital Act (S.1791).

The current Jumpstart Our Business Startups Act (JOBS Act), is a culmination of all the above bills and their revisions combined, and each of these bills has a corresponding title in the final draft of the JOBS Act as follows:

Title I - Reopening American Capital Markets to Emerging Growth Companies

Title II - Access to Capital for Job Creators

Title III Crowdfunding.Title IV - Small Company Capital Formation.

Title V - Private Company Flexibility and Growth.

Title VI - Capital Expansion.And a seventh title was included that mandates the Securities and Exchange Commission (SEC) to conduct studies and provide guidelines on capital formation, core disclosure, and registration requirements for the emerging growth companies;

Title VII - Outreach on Changes to the Law or Commission.The final draft received bipartisan support and passed the Senate on March 22, and later the House on March 27. Consequently, the JOBS Act was signed into law by President Barack Obama on April 5, 2012, at the white house rose garden.

Academic Research on the JOBS Act

• The JOBS Act and crowdfunding: Harnessing the powerand moneyof the masses, Stemler, A. R. (2013). Business Horizons, 56(3), 271-275. The paper looks at one section of the JOBS Act, that is, Title III -the CROWDFUND Act, and discusses how it has the potential to help millions of underfunded entrepreneurs. The paper also looks at the risks involved with crowd-funding and suggests a more informed approach by investors.
• Publicness in Contemporary Securities Regulation after the JOBS Act, Langevoort, D. C., & Thompson, R. B. (2012). Geo. LJ, 101, 337. The paper investigates whether companies should still be forced to take the public status in the current regulatory environment and suggest more regulatory processes need to be put in place in the wake of technological change. The paper suggests the increase in shareholder requirements from 500 to 2000 still misses the underlying principle of going public.
• The JOBS Act and IPO volume: Evidence that disclosure costs affect the IPO decision, Dambra, M., Field, L. C., & Gustafson, M. T. (2015). Journal of Financial Economics, 116(1), 121-143. The article examines the effects of reduced regulatory requirements on disclosure and how it has led to an increase in companies taking up IPO.
• The jobs act, Cunningham, W. M. (2016). In The JOBS Act(pp. 3-35). Apress, Berkeley, CA. The paper presents the Jumpstart Our Business Startups Act in general and discusses the provisions provided by the Act in general.
• The JOBS Act and information uncertainty in IPO firms, Barth, M. E., Landsman, W. R., & Taylor, D. J. (2017). The Accounting Review, 92(6), 25-47. The paper examines how reduced mandatory regulation on disclosure by the Jumpstart Our Business Startups Act (JOBS Act) has led to an information uncertainty in IPO firms and consequently underpricing in small firms.
• The JOBS Act and the costs of going public, Chaplinsky, S., Hanley, K. W., & Moon, S. K. (2017). Journal of Accounting Research, 55(4), 795-836. The paper examines the cost of going public for emerging growth companies and presents findings that despite deregulations there is no reduction in the direct costs of issuance, accounting, legal, or underwriting fees for EGC Initial public offering.
• The JOBS act of 2012: Balancing fundamental securities law principles with the demands of the crowd, Martin, T. (2012). The paper looks at how the JOBS Act of 2012 eliminates most laws including Sarbanes-Oxley (2002) and the Dodd-Frank Act (2010) as well as U.S. securities laws, especially the Securities Act of 1933 and the Securities Exchange Act of 1934. The paper suggests that despite the government lacking an oversight in the crowd-funding market, the benefit outweighs the risk.
• The JOBS Act-crowdfunding and beyond, Kitchens, R., & Torrence, P. D. (2012). Economic Development Journal, 11(4), 42. The paper looks at the future of crowdfunding as initiated by the JOBS Act as a means of capital formation and its overall impact on the United States economy.
• Labour market reforms in Italy: Evaluating the efects of the Jobs Act, Fana, M., Guarascio, D., & Cirillo, V. (2015). LEM Working Paper Series. The paper presents criticisms on the effect of Italys Law 183 of 2014, also known as the "Jobs Act" and how it has limited companies from monitoring employees as well as providing an open-ended contract to employees in Italy and how it has failed to achieve its intended goal.
• Protection from What: Investor Protection and the JOBS Act, Guttentag, M. D. (2012). UC Davis Bus. LJ, 13, 207. The paper presents arguments on investor protections and analyses the deregulation by the JOBS Act of strict rules that used to safeguards investors since 1933.
• An analysis of the tax holiday for repatriation under the Jobs Act, Clemons, R., & Kinney, M. (2008). The paper looks at how the American Jobs Creation Act (AJCA) of 2004 led to repatriations of earning by companies in the United States following the provision of the one-time tax holiday but concludes that the funds repatriated did not achieve the intended purpose.
• JOBS Act eases securities-law regulation of smaller companies, Parrino, R. J., & Romeo, P. J. (2012). JOBS Journal of Investment Compliance, 13(3), 27-35. The paper examines the impact of the JOBS Act and the overall achievement in helping emerging growth companies to list for IPO by loosening the securities laws strict regulations. The paper further suggests an increased oversight as the deregulation could lead to increased investment scams.