Policymakers have expressed concern about the ability of small and young firms, in particular, to secure equity financing for growth and job creation. Indeed, over the past decade, many sources have reported a precipitous decline in the number of initial public offerings (IPOs) in the United States—particularly for small companies. The recent decline in IPOs raises several questions: what has caused such a decline? What are the implications for the U.S. economy, and particularly for job creation? Are foreign exchanges outcompeting U.S. exchanges? At the same time, while IPOs appear to have fallen in the United States for a variety of reasons, the amount of private stock offerings has increased during this period. To what extent is this a viable replacement for IPOs? This report analyzes the factors contributing to the decline in IPOs and discusses whether that decline is significant; the differences between an IPO involving the sale of shares to the public versus a private stock offering for sophisticated investors; and the potential economic implications of a rise in private versus public stock offerings. On April 5, 2012, the Jumpstart Our Business Startup Act (JOBS Act; P.L. 112-106 ), which is broadly aimed at boosting capital formation, was enacted. This report describes key elements of the JOBS Act and provides a background discussion of key policy issues of relevance to the legislation. Companies can be categorized into two groups: privately held companies and publicly held companies. Most businesses are privately held companies that have either not distributed any ownership shares or have a small number of shareholders with limited ability to transact in shares. Although the preponderance of larger companies, such as Apple, General Electric, Google, and Facebook, are publicly held firms, a number of larger companies, like IKEA, Hallmark Cards, and Mars Candy, are privately held. Among other things, the JOBS Act seeks to make it easier for firms to list publicly traded shares through IPOs. At the same time, while the number, and total dollar amount, of IPOs in the United States has fallen noticeably, the dollar amount of private, or restricted, stock offerings has risen. A study by the SEC's chief economist in 2011, which focused on the aggregate size of securities offerings, found that private offerings grew by nearly 50% from 2009 to 2010, from about $950 billion to about $1.4 trillion. The study also found that between 2009 and 2010, aggregate public equity issuances fell by 11%, from $1.27 trillion to $1.133 trillion. In addition, the SEC study also found that aggregate amount of private stock issuances (at more than $905 billion) surpassed debt issuances (about $851 billion) in 2010, a trend that reportedly continued through the first quarter of 2011. When a privately held firm conducts an IPO, its first widespread sale of company stock to the investing public, it becomes a publicly held firm whose shares are then subsequently traded on the secondary securities market through a securities exchange. IPOs enable such firms to raise equity capital, which may enable them to expand. In exchange for the right to broadly distribute their shares, the publicly held companies are subject to an assortment of rules and regulations, such as a board of directors requirement, and having to comply with various Securities and Exchange Commission (SEC) enforced registration and financial disclosure filing requirements (such as filing quarterly and annual reports). Although many privately held firms go public on their own, others become publicly held companies as part of the exit-payoff strategy of venture capital firms who have been incubating them through funding and managerial support. According to IPO data published by a law firm, venture capital-backed IPOs accounted for 46 of the 142 IPOs in 2010. Another kind of private to public strategy can involve an independent or venture capital-backed privately held company becoming part of an existing publicly held firm through an acquisition by such an entity. There is also a corporate "middle ground" between the privately held companies with no shared equity ownership and the publicly held firms with widely dispersed equity ownership. These are generally small companies who pursue specific limited or restricted stock offerings, sometimes known as private stock offerings. Because of the limited nature of the offerings, they are not subject to the full array of SEC registration and disclosure requirements and the attendant compliance costs associated with unlimited public offerings. Such "private stock offerings" cannot be sold widely to the public, but only to certain "sophisticated" investors. The purpose of allowing such restricted stock offerings is to make it easier for small or growing companies to raise capital, while continuing to protect ordinary retail investors. As such, the SEC has established certain exemptions from the registration and disclosure requirements of the federal securities laws for companies that either seek to raise only a small amount of equity capital (less than $5 million) or to sell shares only to a limited number of sophisticated investors, rather than to the general public. Among the SEC regulations that exempt certain small businesses from some of the registration and disclosure requirements of the federal securities laws, Regulation A and Regulation D are especially important. Regulation A allows the SEC, through the issuance of rules and regulations, to exempt any class of securities from registration under the Securities Act of 1933 if it finds that the exemption is in the public interest and the issue of securities does not exceed $5 million during any 12-month period. The JOBS Act increases this threshold to $50 million, a potential boost to the ability of small firms to raise equity capital. However, it also increases the number of potential firms who in conducting such offerings would do so in the context of reduced required disclosures and thus potentially reduced investor protections. Regulation D contains three rules that provide exemptions from registration. Rule 504 allows an exemption from registration for some companies when they offer and sell up to $1 million of their securities within a 12-month period. To qualify for a Rule 505 exemption within Regulation D, a company can offer and sell only up to $5 million of its securities in any 12-month period, to an unlimited number of defined "accredited investors" and up to 35 other investors who do not satisfy the sophistication or wealth standards. The company must inform purchasers that they have received restricted securities that cannot be sold for six months or longer without registration, and the company cannot use general solicitation or advertising to sell the securities. Rule 506 of Regulation D allows a private offering under the Section 4(2) registration exemption of the 1933 act if criteria such as the following are met: (1) general solicitation or advertising to market the securities is not used; (2) an unlimited number of defined accredited investors and up to 35 other investors may purchase the securities, but the other purchasers must have sufficient knowledge and experience to be able to evaluate the merits and risks of the investment; (3) accredited and non-accredited investors must receive similar disclosure documents; (4) the company must be available to answer questions from prospective investors; and (5) purchasers cannot sell the securities for at least a year without registration. The rise in private stock offerings, alongside the decline in public listings, has been marked. From 1991 to 1997, nearly 80% of U.S. IPOs were of less than $50 million in market capitalization, but by 2000, their share had fallen to 20% or less of all IPOs. In 2010, IPOs of under $50 million comprised only around 18% of all IPOs. At the same time, the amount of private offerings has risen sharply. SEC Commissioner Elise Walter estimated that in 2010, more than $900 billion in private securities were sold under Regulation D alone. In addition, the SEC's chief economist estimated that since the beginning of 2009, there have been roughly 37,000 Regulation D offerings reported to the SEC, with a median size per offering of about $1 million. Observers have noted that smaller issuers are displaying a preference for private offerings over IPOs—whether because they have no choice, due to market structure, or for other reasons. Financial experts argue that companies generally would probably prefer to issue publicly traded stock through an IPO, as such stock can be traded freely, has liquidity, and thus carries a "liquidity premium"—meaning investors are willing to pay more for the freedom to quickly sell their stock freely on the open market. The vice president of the NASDAQ exchange, for instance, estimated that discounts on private corporate shares, due to lack of marketability or liquidity, range from 30% to 75%, on the principle that "the higher the number of bidders for an asset, the higher the sales price." Yet, for a multiplicity of reasons discussed below, it has become more difficult for smaller companies to do IPOs. Although size estimates vary, some have argued that the level of liquidity desired by institutional investors probably begins with a public offering of market capitalization $500 million or more. Several advantages are often associated with remaining a privately held company vis-à-vis becoming a public company. By the same token, other advantages are commonly ascribed to companies that have gone public via an IPO in contrast to remaining a privately held company. Key advantages associated with each of these are described below. Frequently cited advantages of remaining private vis-à-vis going public through an IPO include the following: Public companies may face added market-based pressures to emphasize short-term results over long-term growth. Private company founders and insiders invariably lose a certain amount of control when their company goes public. Unlike private companies, public companies are at risk from unsolicited takeover attempts. Becoming a public company can be an expensive undertaking (with costs of IPOs that can range between $250,000 and more than $1 million). In addition, if the offering does not succeed, as is sometimes the case, the company will have nothing to show for those expenditures.