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[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3606 Engrossed in House (EH)]

112th CONGRESS
  2d Session
                                H. R. 3606

_______________________________________________________________________

                                 AN ACT

 
  To increase American job creation and economic growth by improving 
  access to the public capital markets for emerging growth companies.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Jumpstart Our Business Startups 
Act''.

SEC. 2. TABLE OF CONTENTS.

    The table of contents of this Act is as follows:

Sec. 1. Short title.
Sec. 2. Table of contents.
    TITLE I--REOPENING AMERICAN CAPITAL MARKETS TO EMERGING GROWTH 
                               COMPANIES

Sec. 101. Definitions.
Sec. 102. Disclosure obligations.
Sec. 103. Internal controls audit.
Sec. 104. Auditing standards.
Sec. 105. Availability of information about emerging growth companies.
Sec. 106. Other matters.
Sec. 107. Opt-in right for emerging growth companies.
Sec. 108. Review of Regulation S-K.
              TITLE II--ACCESS TO CAPITAL FOR JOB CREATORS

Sec. 201. Modification of exemption.
               TITLE III--ENTREPRENEUR ACCESS TO CAPITAL

Sec. 301. Crowdfunding exemption.
Sec. 302. Exclusion of crowdfunding investors from shareholder cap.
Sec. 303. Preemption of State law.
               TITLE IV--SMALL COMPANY CAPITAL FORMATION

Sec. 401. Authority to exempt certain securities.
Sec. 402. Study on the impact of State Blue Sky laws on Regulation A 
                            offerings.
            TITLE V--PRIVATE COMPANY FLEXIBILITY AND GROWTH

Sec. 501. Threshold for registration.
Sec. 502. Employees.
Sec. 503. Commission rulemaking.
Sec. 504. Commission study of enforcement authority under Rule 12g5-1.
                      TITLE VI--CAPITAL EXPANSION

Sec. 601. Shareholder threshold for registration.
Sec. 602. Rulemaking.
               TITLE VII--OUTREACH ON CHANGES TO THE LAW

Sec. 701. Outreach by the Commission.

    TITLE I--REOPENING AMERICAN CAPITAL MARKETS TO EMERGING GROWTH 
                               COMPANIES

SEC. 101. DEFINITIONS.

    (a) Securities Act of 1933.--Section 2(a) of the Securities Act of 
1933 (15 U.S.C. 77b(a)) is amended by adding at the end the following:
            ``(19) The term `emerging growth company' means an issuer 
        that had total annual gross revenues of less than 
        $1,000,000,000 (as such amount is indexed for inflation every 5 
        years by the Commission to reflect the change in the Consumer 
        Price Index for All Urban Consumers published by the Bureau of 
        Labor Statistics, setting the threshold to the nearest 
        1,000,000) during its most recently completed fiscal year. An 
        issuer that is an emerging growth company as of the first day 
        of that fiscal year shall continue to be deemed an emerging 
        growth company until the earliest of--
                    ``(A) the last day of the fiscal year of the issuer 
                during which it had total annual gross revenues of 
                $1,000,000,000 (as such amount is indexed for inflation 
                every 5 years by the Commission to reflect the change 
                in the Consumer Price Index for All Urban Consumers 
                published by the Bureau of Labor Statistics, setting 
                the threshold to the nearest 1,000,000) or more;
                    ``(B) the last day of the fiscal year of the issuer 
                following the fifth anniversary of the date of the 
                first sale of common equity securities of the issuer 
                pursuant to an effective registration statement under 
                this title;
                    ``(C) the date on which such issuer has, during the 
                previous 3-year period, issued more than $1,000,000,000 
                in non-convertible debt; or
                    ``(D) the date on which such issuer is deemed to be 
                a `large accelerated filer', as defined in section 
                240.12b-2 of title 17, Code of Federal Regulations, or 
                any successor thereto.''.
    (b) Securities Exchange Act of 1934.--Section 3(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended--
            (1) by redesignating paragraph (77), as added by section 
        941(a) of the Investor Protection and Securities Reform Act of 
        2010 (Public Law 111-203, 124 Stat. 1890), as paragraph (79); 
        and
            (2) by adding at the end the following:
            ``(80) Emerging growth company.--The term `emerging growth 
        company' means an issuer that had total annual gross revenues 
        of less than $1,000,000,000 (as such amount is indexed for 
        inflation every 5 years by the Commission to reflect the change 
        in the Consumer Price Index for All Urban Consumers published 
        by the Bureau of Labor Statistics, setting the threshold to the 
        nearest 1,000,000) during its most recently completed fiscal 
        year. An issuer that is an emerging growth company as of the 
        first day of that fiscal year shall continue to be deemed an 
        emerging growth company until the earliest of--
                    ``(A) the last day of the fiscal year of the issuer 
                during which it had total annual gross revenues of 
                $1,000,000,000 (as such amount is indexed for inflation 
                every 5 years by the Commission to reflect the change 
                in the Consumer Price Index for All Urban Consumers 
                published by the Bureau of Labor Statistics, setting 
                the threshold to the nearest 1,000,000) or more;
                    ``(B) the last day of the fiscal year of the issuer 
                following the fifth anniversary of the date of the 
                first sale of common equity securities of the issuer 
                pursuant to an effective registration statement under 
                the Securities Act of 1933;
                    ``(C) the date on which such issuer has, during the 
                previous 3-year period, issued more than $1,000,000,000 
                in non-convertible debt; or
                    ``(D) the date on which such issuer is deemed to be 
                a `large accelerated filer', as defined in section 
                240.12b-2 of title 17, Code of Federal Regulations, or 
                any successor thereto.''.
    (c) Other Definitions.--As used in this title, the following 
definitions shall apply:
            (1) Commission.--The term ``Commission'' means the 
        Securities and Exchange Commission.
            (2) Initial public offering date.--The term ``initial 
        public offering date'' means the date of the first sale of 
        common equity securities of an issuer pursuant to an effective 
        registration statement under the Securities Act of 1933.
    (d) Effective Date.--Notwithstanding section 2(a)(19) of the 
Securities Act of 1933 and section 3(a)(80) of the Securities Exchange 
Act of 1934, an issuer shall not be an emerging growth company for 
purposes of such Acts if the first sale of common equity securities of 
such issuer pursuant to an effective registration statement under the 
Securities Act of 1933 occurred on or before December 8, 2011.

SEC. 102. DISCLOSURE OBLIGATIONS.

    (a) Executive Compensation.--
            (1) Exemption.--Section 14A(e) of the Securities Exchange 
        Act of 1934 (15 U.S.C. 78n-1(e)) is amended--
                    (A) by striking ``The Commission may'' and 
                inserting the following:
            ``(1) In general.-- The Commission may'';
                    (B) by striking ``an issuer'' and inserting ``any 
                other issuer''; and
                    (C) by adding at the end the following:
            ``(2) Treatment of emerging growth companies.--
                    ``(A) In general.--An emerging growth company shall 
                be exempt from the requirements of subsections (a) and 
                (b).
                    ``(B) Compliance after termination of emerging 
                growth company treatment.--An issuer that was an 
                emerging growth company but is no longer an emerging 
                growth company shall include the first separate 
                resolution described under subsection (a)(1) not later 
                than the end of--
                            ``(i) in the case of an issuer that was an 
                        emerging growth company for less than 2 years 
                        after the date of first sale of common equity 
                        securities of the issuer pursuant to an 
                        effective registration statement under the 
                        Securities Act of 1933, the 3-year period 
                        beginning on such date; and
                            ``(ii) in the case of any other issuer, the 
                        1-year period beginning on the date the issuer 
                        is no longer an emerging growth company.''.
            (2) Proxies.--Section 14(i) of the Securities Exchange Act 
        of 1934 (15 U.S.C. 78n(i)) is amended by inserting ``, for any 
        issuer other than an emerging growth company,'' after 
        ``including''.
            (3) Compensation disclosures.--Section 953(b)(1) of the 
        Investor Protection and Securities Reform Act of 2010 (Public 
        Law 111-203; 124 Stat. 1904) is amended by inserting ``, other 
        than an emerging growth company, as that term is defined in 
        section 3(a) of the Securities Exchange Act of 1934,'' after 
        ``require each issuer''.
    (b) Financial Disclosures and Accounting Pronouncements.--
            (1) Securities act of 1933.--Section 7(a) of the Securities 
        Act of 1933 (15 U.S.C. 77g(a)) is amended--
                    (A) by striking ``(a) The registration'' and 
                inserting the following:
    ``(a) Information Required in Registration Statement.--
            ``(1) In general.--The registration''; and
                    (B) by adding at the end the following:
            ``(2) Treatment of emerging growth companies.--An emerging 
        growth company--
                    ``(A) need not present more than 2 years of audited 
                financial statements in order for the registration 
                statement of such emerging growth company with respect 
                to an initial public offering of its common equity 
                securities to be effective, and in any other 
                registration statement to be filed with the Commission, 
                an emerging growth company need not present selected 
                financial data in accordance with section 229.301 of 
                title 17, Code of Federal Regulations, for any period 
                prior to the earliest audited period presented in 
                connection with its initial public offering; and
                    ``(B) may not be required to comply with any new or 
                revised financial accounting standard until such date 
                that a company that is not an issuer (as defined under 
                section 2(a) of the Sarbanes-Oxley Act of 2002 (15 
                U.S.C. 7201(a)) is required to comply with such new or 
                revised accounting standard, if such standard applies 
                to companies that are not issuers.''.
            (2) Securities exchange act of 1934.--Section 13(a) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) is amended 
        by adding at the end the following: ``In any registration 
        statement, periodic report, or other reports to be filed with 
        the Commission, an emerging growth company need not present 
        selected financial data in accordance with section 229.301 of 
        title 17, Code of Federal Regulations, for any period prior to 
        the earliest audited period presented in connection with its 
        first registration statement that became effective under this 
        Act or the Securities Act of 1933 and, with respect to any such 
        statement or reports, an emerging growth company may not be 
        required to comply with any new or revised financial accounting 
        standard until such date that a company that is not an issuer 
        (as defined under section 2(a) of the Sarbanes-Oxley Act of 
        2002 (15 U.S.C. 7201(a))) is required to comply with such new 
        or revised accounting standard, if such standard applies to 
        companies that are not issuers.''.
    (c) Other Disclosures.--An emerging growth company may comply with 
section 229.303(a) of title 17, Code of Federal Regulations, or any 
successor thereto, by providing information required by such section 
with respect to the financial statements of the emerging growth company 
for each period presented pursuant to section 7(a) of the Securities 
Act of 1933 (15 U.S.C. 77g(a)). An emerging growth company may comply 
with section 229.402 of title 17, Code of Federal Regulations, or any 
successor thereto, by disclosing the same information as any issuer 
with a market value of outstanding voting and nonvoting common equity 
held by non-affiliates of less than $75,000,000.

SEC. 103. INTERNAL CONTROLS AUDIT.

    Section 404(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
7262(b)) is amended by inserting ``, other than an issuer that is an 
emerging growth company (as defined in section 3 of the Securities 
Exchange Act of 1934),'' before ``shall attest to''.

SEC. 104. AUDITING STANDARDS.

    Section 103(a)(3) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
7213(a)(3)) is amended by adding at the end the following:
                    ``(C) Transition period for emerging growth 
                companies.--Any rules of the Board requiring mandatory 
                audit firm rotation or a supplement to the auditor's 
                report in which the auditor would be required to 
                provide additional information about the audit and the 
                financial statements of the issuer (auditor discussion 
                and analysis) shall not apply to an audit of an 
                emerging growth company, as defined in section 3 of the 
                Securities Exchange Act of 1934. Any additional rules 
                adopted by the Board after the date of enactment of 
                this subparagraph shall not apply to an audit of any 
                emerging growth company, unless the Commission 
                determines that the application of such additional 
                requirements is necessary or appropriate in the public 
                interest, after considering the protection of investors 
                and whether the action will promote efficiency, 
                competition, and capital formation.''.

SEC. 105. AVAILABILITY OF INFORMATION ABOUT EMERGING GROWTH COMPANIES.

    (a) Provision of Research.--Section 2(a)(3) of the Securities Act 
of 1933 (15 U.S.C. 77b(a)(3)) is amended by adding at the end the 
following: ``The publication or distribution by a broker or dealer of a 
research report about an emerging growth company that is the subject of 
a proposed public offering of the common equity securities of such 
emerging growth company pursuant to a registration statement that the 
issuer proposes to file, or has filed, or that is effective shall be 
deemed for purposes of paragraph (10) of this subsection and section 
5(c) not to constitute an offer for sale or offer to sell a security, 
even if the broker or dealer is participating or will participate in 
the registered offering of the securities of the issuer. As used in 
this paragraph, the term `research report' means a written, electronic, 
or oral communication that includes information, opinions, or 
recommendations with respect to securities of an issuer or an analysis 
of a security or an issuer, whether or not it provides information 
reasonably sufficient upon which to base an investment decision.''.
    (b) Securities Analyst Communications.--Section 15D of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-6) is amended--
            (1) by redesignating subsection (c) as subsection (d); and
            (2) by inserting after subsection (b) the following:
    ``(c) Limitation.--Notwithstanding subsection (a) or any other 
provision of law, neither the Commission nor any national securities 
association registered under section 15A may adopt or maintain any rule 
or regulation in connection with an initial public offering of the 
common equity of an emerging growth company--
            ``(1) restricting, based on functional role, which 
        associated persons of a broker, dealer, or member of a national 
        securities association, may arrange for communications between 
        a securities analyst and a potential investor; or
            ``(2) restricting a securities analyst from participating 
        in any communications with the management of an emerging growth 
        company that is also attended by any other associated person of 
        a broker, dealer, or member of a national securities 
        association whose functional role is other than as a securities 
        analyst.''.
    (c) Expanding Permissible Communications.--Section 5 of the 
Securities Act of 1933 (15 U.S.C. 77e) is amended--
            (1) by redesignating subsection (d) as subsection (e); and
            (2) by inserting after subsection (c) the following:
    ``(d) Limitation.--Notwithstanding any other provision of this 
section, an emerging growth company or any person authorized to act on 
behalf of an emerging growth company may engage in oral or written 
communications with potential investors that are qualified 
institutional buyers or institutions that are accredited investors, as 
such terms are respectively defined in section 230.144A and section 
230.501(a) of title 17, Code of Federal Regulations, or any successor 
thereto, to determine whether such investors might have an interest in 
a contemplated securities offering, either prior to or following the 
date of filing of a registration statement with respect to such 
securities with the Commission, subject to the requirement of 
subsection (b)(2).''.
    (d) Post Offering Communications.--Neither the Commission nor any 
national securities association registered under section 15A of the 
Securities Exchange Act of 1934 may adopt or maintain any rule or 
regulation prohibiting any broker, dealer, or member of a national 
securities association from publishing or distributing any research 
report or making a public appearance, with respect to the securities of 
an emerging growth company, either--
            (1) within any prescribed period of time following the 
        initial public offering date of the emerging growth company; or
            (2) within any prescribed period of time prior to the 
        expiration date of any agreement between the broker, dealer, or 
        member of a national securities association and the emerging 
        growth company or its shareholders that restricts or prohibits 
        the sale of securities held by the emerging growth company or 
        its shareholders after the initial public offering date.

SEC. 106. OTHER MATTERS.

    (a) Draft Registration Statements.--Section 6 of the Securities Act 
of 1933 (15 U.S.C. 77f) is amended by adding at the end the following:
    ``(e) Emerging Growth Companies.--
            ``(1) In general.--Any emerging growth company, prior to 
        its initial public offering date, may confidentially submit to 
        the Commission a draft registration statement, for confidential 
        nonpublic review by the staff of the Commission prior to public 
        filing, provided that the initial confidential submission and 
        all amendments thereto shall be publicly filed with the 
        Commission not later than 21 days before the date on which the 
        issuer conducts a road show, as such term is defined in section 
        230.433(h)(4) of title 17, Code of Federal Regulations, or any 
        successor thereto.
            ``(2) Confidentiality.--Notwithstanding any other provision 
        of this title, the Commission shall not be compelled to 
        disclose any information provided to or obtained by the 
        Commission pursuant to this subsection. For purposes of section 
        552 of title 5, United States Code, this subsection shall be 
        considered a statute described in subsection (b)(3)(B) of such 
        section 552. Information described in or obtained pursuant to 
        this subsection shall be deemed to constitute confidential 
        information for purposes of section 24(b)(2) of the Securities 
        Exchange Act of 1934.''.
    (b) Tick Size.--Section 11A(c) of the Securities Exchange Act of 
1934 (15 U.S.C. 78k-1(c)) is amended by adding at the end the following 
new paragraph:
            ``(6) Tick size.--
                    ``(A) Study and report.--The Commission shall 
                conduct a study examining the transition to trading and 
                quoting securities in one penny increments, also known 
                as decimalization. The study shall examine the impact 
                that decimalization has had on the number of initial 
                public offerings since its implementation relative to 
                the period before its implementation. The study shall 
                also examine the impact that this change has had on 
                liquidity for small and middle capitalization company 
                securities and whether there is sufficient economic 
                incentive to support trading operations in these 
                securities in penny increments. Not later than 90 days 
                after the date of enactment of this paragraph, the 
                Commission shall submit to Congress a report on the 
                findings of the study.
                    ``(B) Designation.--If the Commission determines 
                that the securities of emerging growth companies should 
                be quoted and traded using a minimum increment of 
                greater than $0.01, the Commission may, by rule not 
                later than 180 days after the date of enactment of this 
                paragraph, designate a minimum increment for the 
                securities of emerging growth companies that is greater 
                than $0.01 but less than $0.10 for use in all quoting 
                and trading of securities in any exchange or other 
                execution venue.''.

SEC. 107. OPT-IN RIGHT FOR EMERGING GROWTH COMPANIES.

    (a) In General.--With respect to an exemption provided to emerging 
growth companies under this title, or an amendment made by this title, 
an emerging growth company may choose to forgo such exemption and 
instead comply with the requirements that apply to an issuer that is 
not an emerging growth company.
    (b) Special Rule.--Notwithstanding subsection (a), with respect to 
the extension of time to comply with new or revised financial 
accounting standards provided under section 7(a)(2)(B) of the 
Securities Act of 1933 and section 13(a) of the Securities Exchange Act 
of 1934, as added by section 102(b), if an emerging growth company 
chooses to comply with such standards to the same extent that a non-
emerging growth company is required to comply with such standards, the 
emerging growth company--
            (1) must make such choice at the time the company is first 
        required to file a registration statement, periodic report, or 
        other report with the Commission under section 13 of the 
        Securities Exchange Act of 1934 and notify the Securities and 
        Exchange Commission of such choice;
            (2) may not select some standards to comply with in such 
        manner and not others, but must comply with all such standards 
        to the same extent that a non-emerging growth company is 
        required to comply with such standards; and
            (3) must continue to comply with such standards to the same 
        extent that a non-emerging growth company is required to comply 
        with such standards for as long as the company remains an 
        emerging growth company.

SEC. 108. REVIEW OF REGULATION S-K.

    (a) Review.--The Securities and Exchange Commission shall conduct a 
review of its Regulation S-K (17 CFR 229.10 et seq.) to--
            (1) comprehensively analyze the current registration 
        requirements of such regulation; and
            (2) determine how such requirements can be updated to 
        modernize and simplify the registration process and reduce the 
        costs and other burdens associated with these requirements for 
        issuers who are emerging growth companies.
    (b) Report.--Not later the 180 days after the date of enactment of 
this title, the Commission shall transmit to Congress a report of the 
review conducted under subsection (a). The report shall include the 
specific recommendations of the Commission on how to streamline the 
registration process in order to make it more efficient and less 
burdensome for the Commission and for prospective issuers who are 
emerging growth companies.

              TITLE II--ACCESS TO CAPITAL FOR JOB CREATORS

SEC. 201. MODIFICATION OF EXEMPTION.

    (a) Modification of Rules.--
            (1) Not later than 90 days after the date of the enactment 
        of this Act, the Securities and Exchange Commission shall 
        revise its rules issued in section 230.506 of title 17, Code of 
        Federal Regulations, to provide that the prohibition against 
        general solicitation or general advertising contained in 
        section 230.502(c) of such title shall not apply to offers and 
        sales of securities made pursuant to section 230.506, provided 
        that all purchasers of the securities are accredited investors. 
        Such rules shall require the issuer to take reasonable steps to 
        verify that purchasers of the securities are accredited 
        investors, using such methods as determined by the Commission. 
        Section 230.506 of title 17, Code of Federal Regulations, as 
        revised pursuant to this section, shall continue to be treated 
        as a regulation issued under section 4(2) of the Securities Act 
        of 1933 (15 U.S.C. 77d(2)).
            (2) Not later than 90 days after the date of enactment of 
        this Act, the Securities and Exchange Commission shall revise 
        subsection (d)(1) of section 230.144A of title 17, Code of 
        Federal Regulations, to provide that securities sold under such 
        revised exemption may be offered to persons other than 
        qualified institutional buyers, including by means of general 
        solicitation or general advertising, provided that securities 
        are sold only to persons that the seller and any person acting 
        on behalf of the seller reasonably believe is a qualified 
        institutional buyer.
    (b) Consistency in Interpretation.--Section 4 of the Securities Act 
of 1933 (15 U.S.C. 77d) is amended--
            (1) by striking ``The provisions of section 5'' and 
        inserting ``(a) The provisions of section 5''; and
            (2) by adding at the end the following:
    ``(b) Offers and sales exempt under section 230.506 of title 17, 
Code of Federal Regulations (as revised pursuant to section 201 of the 
Jumpstart Our Business Startups Act) shall not be deemed public 
offerings under the Federal securities laws as a result of general 
advertising or general solicitation.''.
    (c) Explanation of Exemption.--Section 4 of the Securities Act of 
1933 (15 U.S.C. 77d) is amended--
            (1) by striking ``The provisions of section 5'' and 
        inserting ``(a) The provisions of section 5''; and
            (2) by adding at the end the following:
    ``(b)(1) With respect to securities offered and sold in compliance 
with Rule 506 of Regulation D under this Act, no person who meets the 
conditions set forth in paragraph (2) shall be subject to registration 
as a broker or dealer pursuant to section 15(a)(1) of this title, 
solely because--
                    ``(A) that person maintains a platform or mechanism 
                that permits the offer, sale, purchase, or negotiation 
                of or with respect to securities, or permits general 
                solicitations, general advertisements, or similar or 
                related activities by issuers of such securities, 
                whether online, in person, or through any other means;
                    ``(B) that person or any person associated with 
                that person co-invests in such securities; or
                    ``(C) that person or any person associated with 
                that person provides ancillary services with respect to 
                such securities.
    ``(2) The exemption provided in paragraph (1) shall apply to any 
person described in such paragraph if--
            ``(A) such person and each person associated with that 
        person receives no compensation in connection with the purchase 
        or sale of such security;
            ``(B) such person and each person associated with that 
        person does not have possession of customer funds or securities 
        in connection with the purchase or sale of such security; and
            ``(C) such person is not subject to a statutory 
        disqualification as defined in section 3(a)(39) of this title 
        and does not have any person associated with that person 
        subject to such a statutory disqualification.
    ``(3) For the purposes of this subsection, the term `ancillary 
services' means--
            ``(A) the provision of due diligence services, in 
        connection with the offer, sale, purchase, or negotiation of 
        such security, so long as such services do not include, for 
        separate compensation, investment advice or recommendations to 
        issuers or investors; and
            ``(B) the provision of standardized documents to the 
        issuers and investors, so long as such person or entity does 
        not negotiate the terms of the issuance for and on behalf of 
        third parties and issuers are not required to use the 
        standardized documents as a condition of using the service.''.

               TITLE III--ENTREPRENEUR ACCESS TO CAPITAL

SEC. 301. CROWDFUNDING EXEMPTION.

    (a) Securities Act of 1933.--Section 4 of the Securities Act of 
1933 (15 U.S.C. 77d) (as amended by section 201) is further amended by 
adding at the end the following:
            ``(6) transactions involving the offer or sale of 
        securities by an issuer, provided that--
                    ``(A) the aggregate amount sold within the previous 
                12-month period in reliance upon this exemption is--
                            ``(i) $1,000,000, as such amount is 
                        adjusted by the Commission to reflect the 
                        annual change in the Consumer Price Index for 
                        All Urban Consumers published by the Bureau of 
                        Labor Statistics, or less; or
                            ``(ii) if the issuer provides potential 
                        investors with audited financial statements, 
                        $2,000,000, as such amount is adjusted by the 
                        Commission to reflect the annual change in the 
                        Consumer Price Index for All Urban Consumers 
                        published by the Bureau of Labor Statistics, or 
                        less;
                    ``(B) the aggregate amount sold to any investor in 
                reliance on this exemption within the previous 12-month 
                period does not exceed the lesser of--
                            ``(i) $10,000, as such amount is adjusted 
                        by the Commission to reflect the annual change 
                        in the Consumer Price Index for All Urban 
                        Consumers published by the Bureau of Labor 
                        Statistics; and
                            ``(ii) 10 percent of such investor's annual 
                        income;
                    ``(C) in the case of a transaction involving an 
                intermediary between the issuer and the investor, such 
                intermediary complies with the requirements under 
                section 4A(a); and
                    ``(D) in the case of a transaction not involving an 
                intermediary between the issuer and the investor, the 
                issuer complies with the requirements under section 
                4A(b).''.
    (b) Requirements to Qualify for Crowdfunding Exemption.--The 
Securities Act of 1933 is amended by inserting after section 4 the 
following:

``SEC. 4A. REQUIREMENTS WITH RESPECT TO CERTAIN SMALL TRANSACTIONS.

    ``(a) Requirements on Intermediaries.--For purposes of section 
4(6), a person acting as an intermediary in a transaction involving the 
offer or sale of securities shall comply with the requirements of this 
subsection if the intermediary--
            ``(1) warns investors, including on the intermediary's 
        website used for the offer and sale of such securities, of the 
        speculative nature generally applicable to investments in 
        startups, emerging businesses, and small issuers, including 
        risks in the secondary market related to illiquidity;
            ``(2) warns investors that they are subject to the 
        restriction on sales requirement described under subsection 
        (e);
            ``(3) takes reasonable measures to reduce the risk of fraud 
        with respect to such transaction;
            ``(4) provides the Commission with the intermediary's 
        physical address, website address, and the names of the 
        intermediary and employees of the intermediary, and keep such 
        information up-to-date;
            ``(5) provides the Commission with continuous investor-
        level access to the intermediary's website;
            ``(6) requires each potential investor to answer questions 
        demonstrating--
                    ``(A) an understanding of the level of risk 
                generally applicable to investments in startups, 
                emerging businesses, and small issuers;
                    ``(B) an understanding of the risk of illiquidity; 
                and
                    ``(C) such other areas as the Commission may 
                determine appropriate by rule or regulation;
            ``(7) requires the issuer to state a target offering amount 
        and a deadline to reach the target offering amount and ensure 
        the third party custodian described under paragraph (10) 
        withholds offering proceeds until aggregate capital raised from 
        investors other than the issuer is no less than 60 percent of 
        the target offering amount;
            ``(8) carries out a background check on the issuer's 
        principals;
            ``(9) provides the Commission and potential investors with 
        notice of the offering, not later than the first day securities 
        are offered to potential investors, including--
                    ``(A) the issuer's name, legal status, physical 
                address, and website address;
                    ``(B) the names of the issuer's principals;
                    ``(C) the stated purpose and intended use of the 
                proceeds of the offering sought by the issuer; and
                    ``(D) the target offering amount and the deadline 
                to reach the target offering amount;
            ``(10) outsources cash-management functions to a qualified 
        third party custodian, such as a broker or dealer registered 
        under section 15(b)(1) of the Securities Exchange Act of 1934 
        or an insured depository institution;
            ``(11) maintains such books and records as the Commission 
        determines appropriate;
            ``(12) makes available on the intermediary's website a 
        method of communication that permits the issuer and investors 
        to communicate with one another;
            ``(13) provides the Commission with a notice upon 
        completion of the offering, which shall include the aggregate 
        offering amount and the number of purchasers; and
            ``(14) does not offer investment advice.
    ``(b) Requirements on Issuers if No Intermediary.--For purposes of 
section 4(6), an issuer who offers or sells securities without an 
intermediary shall comply with the requirements of this subsection if 
the issuer--
            ``(1) warns investors, including on the issuer's website, 
        of the speculative nature generally applicable to investments 
        in startups, emerging businesses, and small issuers, including 
        risks in the secondary market related to illiquidity;
            ``(2) warns investors that they are subject to the 
        restriction on sales requirement described under subsection 
        (e);
            ``(3) takes reasonable measures to reduce the risk of fraud 
        with respect to such transaction;
            ``(4) provides the Commission with the issuer's physical 
        address, website address, and the names of the principals and 
        employees of the issuers, and keeps such information up-to-
        date;
            ``(5) provides the Commission with continuous investor-
        level access to the issuer's website;
            ``(6) requires each potential investor to answer questions 
        demonstrating--
                    ``(A) an understanding of the level of risk 
                generally applicable to investments in startups, 
                emerging businesses, and small issuers;
                    ``(B) an understanding of the risk of illiquidity; 
                and
                    ``(C) such other areas as the Commission may 
                determine appropriate by rule or regulation;
            ``(7) states a target offering amount and ensures that the 
        third party custodian described under paragraph (9) withholds 
        offering proceeds until the aggregate capital raised from 
        investors other than the issuer is no less than 60 percent of 
        the target offering amount;
            ``(8) provides the Commission with notice of the offering, 
        not later than the first day securities are offered to 
        potential investors, including--
                    ``(A) the stated purpose and intended use of the 
                proceeds of the offering sought by the issuer; and
                    ``(B) the target offering amount and the deadline 
                to reach the target offering amount;
            ``(9) outsources cash-management functions to a qualified 
        third party custodian, such as a broker or dealer registered 
        under section 15(b)(1) of the Securities Exchange Act of 1934 
        or an insured depository institution;
            ``(10) maintains such books and records as the Commission 
        determines appropriate;
            ``(11) makes available on the issuer's website a method of 
        communication that permits the issuer and investors to 
        communicate with one another;
            ``(12) does not offer investment advice;
            ``(13) provides the Commission with a notice upon 
        completion of the offering, which shall include the aggregate 
        offering amount and the number of purchasers; and
            ``(14) discloses to potential investors, on the issuer's 
        website, that the issuer has an interest in the issuance.
    ``(c) Verification of Income.--For purposes of section 4(6), an 
issuer or intermediary may rely on certifications as to annual income 
provided by the person to whom the securities are sold to verify the 
investor's income.
    ``(d) Information Available to States.--The Commission shall make 
the notices described under subsections (a)(9), (a)(13), (b)(8), and 
(b)(13) and the information described under subsections (a)(4) and 
(b)(4) available to the States.
    ``(e) Restriction on Sales.--With respect to a transaction 
involving the issuance of securities described under section 4(6), a 
purchaser may not transfer such securities during the 1-year period 
beginning on the date of purchase, unless such securities are sold to--
            ``(1) the issuer of such securities; or
            ``(2) an accredited investor.
    ``(f) Construction.--
            ``(1) No registration as broker.--With respect to a 
        transaction described under section 4(6) involving an 
        intermediary, such intermediary shall not be required to 
        register as a broker under section 15(a)(1) of the Securities 
        Exchange Act of 1934 solely by reason of participation in such 
        transaction.
            ``(2) No preclusion of other capital raising.--Nothing in 
        this section or section 4(6) shall be construed as preventing 
        an issuer from raising capital through methods not described 
        under section 4(6).''.
    (c) Rulemaking.--Not later than 180 days after the date of the 
enactment of this Act, the Securities and Exchange Commission shall 
issue such rules as may be necessary to carry out section 4A of the 
Securities Act of 1933. In issuing such rules, the Commission shall 
consider the costs and benefits of the action.
    (d) Disqualification.--Not later than 180 days after the date of 
the enactment of this Act, the Securities and Exchange Commission shall 
by rule or regulation establish disqualification provisions under which 
an issuer shall not be eligible to utilize the exemption under section 
4(6) of the Securities Act of 1933 based on the disciplinary history of 
the issuer or its predecessors, affiliates, officers, directors, or 
persons fulfilling similar roles. The Commission shall also establish 
disqualification provisions under which an intermediary shall not be 
eligible to act as an intermediary in connection with an offering 
utilizing the exemption under section 4(6) of the Securities Act of 
1933 based on the disciplinary history of the intermediary or its 
predecessors, affiliates, officers, directors, or persons fulfilling 
similar roles. Such provisions shall be substantially similar to the 
disqualification provisions contained in the regulations adopted in 
accordance with section 926 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (15 U.S.C. 77d note).

SEC. 302. EXCLUSION OF CROWDFUNDING INVESTORS FROM SHAREHOLDER CAP.

    Section 12(g)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 
78l(g)(5)) is amended--
            (1) by striking ``(5) For the purposes'' and inserting:
            ``(5) Definitions.--
                    ``(A) In general.--For the purposes''; and
            (2) by adding at the end the following:
                    ``(B) Exclusion for persons holding certain 
                securities.--For purposes of this subsection, 
                securities held by persons who purchase such securities 
                in transactions described under section 4(6) of the 
                Securities Act of 1933 shall not be deemed to be `held 
                of record'.''.

SEC. 303. PREEMPTION OF STATE LAW.

    (a) In General.--Section 18(b)(4) of the Securities Act of 1933 (15 
U.S.C. 77r(b)(4)) is amended--
            (1) by redesignating subparagraphs (C) and (D) as 
        subparagraphs (E) and (F), respectively; and
            (2) by inserting after subparagraph (B) the following:
                    ``(C) section 4(6);''.
    (b) Clarification of the Preservation of State Enforcement 
Authority.--
            (1) In general.--The amendments made by subsection (a) 
        relate solely to State registration, documentation, and 
        offering requirements, as described under section 18(a) of 
        Securities Act of 1933 (15 U.S.C. 77r(a)), and shall have no 
        impact or limitation on other State authority to take 
        enforcement action with regard to an issuer, intermediary, or 
        any other person or entity using the exemption from 
        registration provided by section 4(6) of such Act.
            (2) Clarification of state jurisdiction over unlawful 
        conduct of intermediaries, issuers, and custodians.--Section 
        18(c)(1) of the Securities Act of 1933 is amended by striking 
        ``with respect to fraud or deceit, or unlawful conduct by a 
        broker or dealer, in connection with securities or securities 
        transactions.'' and inserting the following: ``, in connection 
        with securities or securities transactions, with respect to--
                    ``(A) fraud or deceit;
                    ``(B) unlawful conduct by a broker or dealer; and
                    ``(C) with respect to a transaction described under 
                section 4(6), unlawful conduct by an intermediary, 
                issuer, or custodian.''.

               TITLE IV--SMALL COMPANY CAPITAL FORMATION

SEC. 401. AUTHORITY TO EXEMPT CERTAIN SECURITIES.

    (a) In General.--Section 3(b) of the Securities Act of 1933 (15 
U.S.C. 77c(b)) is amended--
            (1) by striking ``(b) The Commission'' and inserting the 
        following:
    ``(b) Additional Exemptions.--
            ``(1) Small issues exemptive authority.--The Commission''; 
        and
            (2) by adding at the end the following:
            ``(2) Additional issues.--The Commission shall by rule or 
        regulation add a class of securities to the securities exempted 
        pursuant to this section in accordance with the following terms 
        and conditions:
                    ``(A) The aggregate offering amount of all 
                securities offered and sold within the prior 12-month 
                period in reliance on the exemption added in accordance 
                with this paragraph shall not exceed $50,000,000.
                    ``(B) The securities may be offered and sold 
                publicly.
                    ``(C) The securities shall not be restricted 
                securities within the meaning of the Federal securities 
                laws and the regulations promulgated thereunder.
                    ``(D) The civil liability provision in section 
                12(a)(2) shall apply to any person offering or selling 
                such securities.
                    ``(E) The issuer may solicit interest in the 
                offering prior to filing any offering statement, on 
                such terms and conditions as the Commission may 
                prescribe in the public interest or for the protection 
                of investors.
                    ``(F) The Commission shall require the issuer to 
                file audited financial statements with the Commission 
                annually.
                    ``(G) Such other terms, conditions, or requirements 
                as the Commission may determine necessary in the public 
                interest and for the protection of investors, which may 
                include--
                            ``(i) a requirement that the issuer prepare 
                        and electronically file with the Commission and 
                        distribute to prospective investors an offering 
                        statement, and any related documents, in such 
                        form and with such content as prescribed by the 
                        Commission, including audited financial 
                        statements, a description of the issuer's 
                        business operations, its financial condition, 
                        its corporate governance principles, its use of 
                        investor funds, and other appropriate matters; 
                        and
                            ``(ii) disqualification provisions under 
                        which the exemption shall not be available to 
                        the issuer or its predecessors, affiliates, 
                        officers, directors, underwriters, or other 
                        related persons, which shall be substantially 
                        similar to the disqualification provisions 
                        contained in the regulations adopted in 
                        accordance with section 926 of the Dodd-Frank 
                        Wall Street Reform and Consumer Protection Act 
                        (15 U.S.C. 77d note).
            ``(3) Limitation.--Only the following types of securities 
        may be exempted under a rule or regulation adopted pursuant to 
        paragraph (2): equity securities, debt securities, and debt 
        securities convertible or exchangeable to equity interests, 
        including any guarantees of such securities.
            ``(4) Periodic disclosures.--Upon such terms and conditions 
        as the Commission determines necessary in the public interest 
        and for the protection of investors, the Commission by rule or 
        regulation may require an issuer of a class of securities 
        exempted under paragraph (2) to make available to investors and 
        file with the Commission periodic disclosures regarding the 
        issuer, its business operations, its financial condition, its 
        corporate governance principles, its use of investor funds, and 
        other appropriate matters, and also may provide for the 
        suspension and termination of such a requirement with respect 
        to that issuer.
            ``(5) Adjustment.--Not later than 2 years after the date of 
        enactment of the Small Company Capital Formation Act of 2011 
        and every 2 years thereafter, the Commission shall review the 
        offering amount limitation described in paragraph (2)(A) and 
        shall increase such amount as the Commission determines 
        appropriate. If the Commission determines not to increase such 
        amount, it shall report to the Committee on Financial Services 
        of the House of Representatives and the Committee on Banking, 
        Housing, and Urban Affairs of the Senate on its reasons for not 
        increasing the amount.''.
    (b) Treatment as Covered Securities for Purposes of NSMIA.--Section 
18(b)(4) of the Securities Act of 1933 (as amended by section 303) (15 
U.S.C. 77r(b)(4)) is further amended by inserting after subparagraph 
(C) (as added by such section) the following:
                    ``(D) a rule or regulation adopted pursuant to 
                section 3(b)(2) and such security is--
                            ``(i) offered or sold on a national 
                        securities exchange; or
                            ``(ii) offered or sold to a qualified 
                        purchaser, as defined by the Commission 
                        pursuant to paragraph (3) with respect to that 
                        purchase or sale;''.
    (c) Conforming Amendment.--Section 4(5) of the Securities Act of 
1933 is amended by striking ``section 3(b)'' and inserting ``section 
3(b)(1)''.

SEC. 402. STUDY ON THE IMPACT OF STATE BLUE SKY LAWS ON REGULATION A 
              OFFERINGS.

    The Comptroller General shall conduct a study on the impact of 
State laws regulating securities offerings, or ``Blue Sky laws'', on 
offerings made under Regulation A (17 CFR 230.251 et seq.). The 
Comptroller General shall transmit a report on the findings of the 
study to the Committee on Financial Services of the House of 
Representatives, and the Committee on Banking, Housing, and Urban 
Affairs of the Senate not later than 3 months after the date of 
enactment of this Act.

            TITLE V--PRIVATE COMPANY FLEXIBILITY AND GROWTH

SEC. 501. THRESHOLD FOR REGISTRATION.

    Section 12(g)(1)(A) of the Securities Exchange Act of 1934 (15 
U.S.C. 78l(g)(1)(A)) is amended to read as follows:
            ``(A) within 120 days after the last day of its first 
        fiscal year ended on which the issuer has total assets 
        exceeding $10,000,000 and a class of equity security (other 
        than an exempted security) held of record by either--
            ``(i) 2,000 persons, or
            ``(ii) 500 persons who are not accredited investors (as 
        such term is defined by the Commission), and''.

SEC. 502. EMPLOYEES.

    Section 12(g)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 
78l(g)(5)), as amended by section 302, is amended in subparagraph (A) 
by adding at the end the following: ``For purposes of determining 
whether an issuer is required to register a security with the 
Commission pursuant to paragraph (1), the definition of `held of 
record' shall not include securities held by persons who received the 
securities pursuant to an employee compensation plan in transactions 
exempted from the registration requirements of section 5 of the 
Securities Act of 1933.''.

SEC. 503. COMMISSION RULEMAKING.

    The Securities and Exchange Commission shall revise the definition 
of ``held of record'' pursuant to section 12(g)(5) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78l(g)(5)) to implement the amendment 
made by section 502. The Commission shall also adopt safe harbor 
provisions that issuers can follow when determining whether holders of 
their securities received the securities pursuant to an employee 
compensation plan in transactions that were exempt from the 
registration requirements of section 5 of the Securities Act of 1933.

SEC. 504. COMMISSION STUDY OF ENFORCEMENT AUTHORITY UNDER RULE 12G5-1.

    The Securities and Exchange Commission shall examine its authority 
to enforce Rule 12g5-1 to determine if new enforcement tools are needed 
to enforce the anti-evasion provision contained in subsection (b)(3) of 
the rule, and shall, not later than 120 days after the date of 
enactment of this Act transmit its recommendations to Congress.

                      TITLE VI--CAPITAL EXPANSION

SEC. 601. SHAREHOLDER THRESHOLD FOR REGISTRATION.

    (a) Amendments to Section 12 of the Securities Exchange Act of 
1934.--Section 12(g) of the Securities Exchange Act of 1934 (15 U.S.C. 
78l(g)) is further amended--
            (1) in paragraph (1), by amending subparagraph (B) to read 
        as follows:
            ``(B) in the case of an issuer that is a bank or a bank 
        holding company, as such term is defined in section 2 of the 
        Bank Holding Company Act of 1956 (12 U.S.C. 1841), not later 
        than 120 days after the last day of its first fiscal year ended 
        after the effective date of this subsection, on which the 
        issuer has total assets exceeding $10,000,000 and a class of 
        equity security (other than an exempted security) held of 
        record by 2,000 or more persons,''; and
            (2) in paragraph (4), by striking ``three hundred'' and 
        inserting ``300 persons, or, in the case of a bank or a bank 
        holding company, as such term is defined in section 2 of the 
        Bank Holding Company Act of 1956 (12 U.S.C. 1841), 1,200 
        persons''.
    (b) Amendments to Section 15 of the Securities Exchange Act of 
1934.--Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(d)) is amended, in the third sentence, by striking ``three 
hundred'' and inserting ``300 persons, or, in the case of bank or a 
bank holding company, as such term is defined in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841), 1,200 persons''.

SEC. 602. RULEMAKING.

    Not later than 1 year after the date of enactment of this Act, the 
Securities and Exchange Commission shall issue final regulations to 
implement this title and the amendments made by this title.

               TITLE VII--OUTREACH ON CHANGES TO THE LAW

SEC. 701. OUTREACH BY THE COMMISSION.

    The Securities and Exchange Commission shall provide online 
information and conduct outreach to inform small and medium sized 
businesses, women owned businesses, veteran owned businesses, and 
minority owned businesses of the changes made by this Act.

            Passed the House of Representatives March 8, 2012.

            Attest:

                                                                 Clerk.
112th CONGRESS

  2d Session

                               H. R. 3606

_______________________________________________________________________

                                 AN ACT

  To increase American job creation and economic growth by improving 
  access to the public capital markets for emerging growth companies.
```