Companies turn to a variety of sources to access the funding they need to grow. Capital markets are the largest source of financing for U.S. nonfinancial companies, representing 65% of all financing for such companies in 2016 ( Figure 1 ). Capital markets are segments of the financial system in which funding is raised through equity or debt securities. Equity, also called stocks or shares, refers to ownership of a firm. And debt, such as bonds, refers to the indebtedness or creditorship of a firm. In addition to capital markets, companies obtain funding from bank loans (13%) and other financing (23%). U.S. capital markets are considered the deepest and most liquid in the world. U.S. companies are more reliant on capital markets for funding than companies in the euro area, Japan, or China, which rely more on bank loans (see Figure 1 ). Access to capital allows businesses to fund their growth, to innovate, to create jobs, and to ultimately help raise society's overall standard of living. Given the importance of U.S. capital markets and their role in allocating funding, issues affecting the markets generally warrant policy attention. Some of the most discussed recent trends include the decline in the number of public companies and the increased tendency of public capital to concentrate in larger companies. In addition, there are indications that private capital—which has less regulation and information disclosure—is growing in usage. Also of concern is the emergence of financial technology that both enables new methods of capital formation and poses significant regulatory challenges. To address some of the trends mentioned above, Congress passed the Jumpstart Our Business Startups Act of 2012 (JOBS Act; P.L. 112-106 ; see text box below), which established a number of new options for expanding capital access especially for smaller companies. As discussed later in this report, some of the changes made by the JOBS Act have been successful in facilitating capital formation, but in other areas the same concerns remain. In response, the 115 th Congress has considered many proposals to boost capital markets, including S. 488, a capital formation package that consists of 32 titles that have mostly already passed the House with bipartisan support as standalone bills. Originally a relatively narrow bill, S. 488 was passed by the Senate before being amended significantly and passed by the House. The package has been referred to as JOBS Act 3.0, taking into account the initial JOBS Act in 2012 and the financial services provisions signed into law as part of the Fixing America's Surface Transportation Act (P.L. 114-94; parts of which are referred to as JOBS Act 2.0). Seven provisions in S. 488 are discussed in this report and were previously introduced as standalone legislation: H.R. 1585, H.R. 1645, H.R. 3903, H.R. 3972, H.R. 5970, H.R. 6324, and H.R. 6380. This report provides background and analysis on proposals related to capital formation through the two main ways of raising capital—public and private offerings—and the regulatory environment in which they operate. The report also explores key policy issues and their connection to legislative discussions. It provides general background for more than a dozen current legislative proposals, allowing for discussion of each proposal within its own policy context as well as providing a framework for viewing the proposals in aggregate. For easy navigation, legislative proposals are highlighted in text boxes within each relevant policy issue section. As the principal regulator of U.S. capital markets, the Securities and Exchange Commission (SEC) requires that offers and sales of securities—whether debt or equity—either be registered with the SEC or be undertaken with an exemption from registration. Companies seeking funding through securities offering are referred to as issuers . Registered offerings, often called public offerings , are available to all types of investors and are not limited in the amount of funds that can be raised or resold. Registered offerings include a significant amount of disclosure about the company (the issuer), its financial status, and the funds that are being raised. A key attribute of public securities offerings is investors' ability to resell the securities on public secondary markets through national exchanges to all investor types. By contrast, securities offerings that are exempt from SEC registration are referred to as private offerings , private placements , or unregistered offerings . They are mainly available to those perceived to be more sophisticated financial institutions or individual investors thought to be better positioned to absorb the risk and make informed decisions with the reduced information disclosed in a private offering. Because of the restrictions on who may purchase them, private offerings generally do not trade on stock exchanges. In general, private offerings provide firms with more control over their internal affairs and lower compliance costs, whereas public offerings provide broader access to potential investors. Public offerings consist of initial public offerings (IPOs), the first time a company offers its shares of stock to the general public in exchange for cash, and subsequent public offerings. The IPO process, which is the source of much of the policy debate surrounding public offerings, is commonly regarded as the turning point for companies "going public." By going public, a company's shares can be owned by the public at large rather than just by the original owners, venture capital funds, and the relatively small pool of those perceived to be more sophisticated investors. SEC registration, which is a key requirement for going public, enables public disclosure of key company financial information. Companies may choose to go public to access capital that would allow founders to cash out their investments, to provide substantial stock and stock options to employees and through management incentive plans, and to fuel the company's future growth. Public companies may also benefit from a "liquidity premium," which translates into better share pricing compared with stock from comparable private offerings. Other potential benefits include publicity and brand awareness. There are also a number of drawbacks to going public. From an issuer's perspective, two of the most discussed drawbacks are compliance costs and certain changes to business operations. Compliance Costs. Some believe the costs of registration are disproportionately burdensome for small and medium-sized businesses, including startup firms. The direct costs include underwriting, external auditing, legal fees, and financial reporting fees. Business Operations. Public companies are often perceived to face incremental market pressure to perform well over the short term, to reduce insider control and decisionmaking flexibility, and to contend with increased shareholder activism (which sometimes can benefit a firm financially). Some research has indicated that going public can adversely affect corporate innovation; however, there are also many examples of innovative public companies. An IPO is the first time a company offers its shares of capital stock to the general public. An IPO gives the investing public the opportunity to own and participate in the growth of a formerly private company. The process begins with the company's selection of underwriters, lawyers, and accountants to prepare for the issuance of the securities, and, along with the company's top executives, they form an IPO working group. The process generally consists of three phases. P re f iling P eriod . As part of an IPO, a company must file a registration statement and other documents that contain information about the company and the funds it is attempting to raise. During the prefiling period, the public filings are prepared and the planning begins with a thorough review of the company's operations, procedures, financials, and management, as well as its competitive positioning and business strategy. The disclosure documents serve the dual purpose of satisfying SEC registration requirements and communicating with investors. W aiting P eriod . Once the key disclosures are filed, the company waits for the SEC to review and provide approval of its draft registration statements. The company then concurrently addresses SEC comments and prepares roadshow presentations as well as legal documents. Roadshows are presentations made by an issuer's senior management to market the upcoming securities offering to prospective investors. Roadshows can commence only after the filing of registration statements because Section 5(c) of the Securities Act prohibits public offers of securities prior to the filing of a registration statement. P os t effective P eriod . The actual sales to investors take place after the SEC declares that the IPO registration is effective. The posteffective period extends from the effective date of the registration statements to the completion of distribution of the securities. With the completion of the IPO, a security generally continues to trade on a stock exchange. Title I of the JOBS Act established streamlined compliance options for companies that meet the definition of a new type of issuer, called an emerging growth company (EGC). The streamlined process available to an EGC is also referred to as the "IPO On-Ramp," because it is a scaled-down version of a traditional IPO. This new process reduces regulatory requirements for companies to go public. To qualify as an EGC, an issuer must have total annual gross revenues of less than $1 billion during its most recently completed fiscal year. EGCs maintain their status for five years after an IPO or when their gross revenue exceeds $1 billion, whichever occurs first, among other conditions. Relative to a standard IPO, EGCs' IPOs can take advantage of the following forms of relief: Scaled disclosure requirements in which EGCs (1) need to provide two years of financial statements certified by independent auditors, instead of three years for a traditional IPO; and (2) are not required to provide compensation committee reports, among other things. EGCs are exempted from auditor attestations of internal control over financial reporting that are required by Sarbanes-Oxley Act Section 404(b). "Test-the-waters" communications mean EGCs may meet with qualified institutional buyers and institutional accredited investors to gauge their interest in a potential offering during the registration process, an activity prohibited during a normal IPO. A confidential SEC review process allows companies to submit draft registration statements to the SEC for a confidential review prior to making the filings public.