Capital Markets Relief: JOBS Act Eases Regulatory Barriers to IPOs and Other Capital Raising Alternatives

Capital Markets Relief: JOBS Act Eases Regulatory Barriers to IPOs and Other Capital Raising Alternatives

by Phillip J. Kardis II, Robert K. Smith, and Barry Spatzer


On April 5, 2012, the President signed into law the Jumpstart Our Business Startups (JOBS) Act (H.R. 3606), which incorporates several initiatives aimed at easing the regulatory burdens of traditional IPOs and private placements and generally facilitating access to the capital markets. The JOBS Act is a sweeping piece of legislation and is enormously relevant to capital markets participants. Companies and their legal and financial advisors who are considering various financing alternatives should consider the benefits of this legislation when structuring potential capital raising transactions.


The JOBS Act combines several pieces of stand-alone legislation previously approved by the House of Representatives in late 2011. The JOBS Act also creates a new category of issuers known as "Emerging Growth Companies" ("EGCs"), which will enjoy certain relaxed restrictions on offering communications and graduated integration (the IPO "on-ramp" provisions) into SEC reporting and governance requirements. In particular, Congress sought to make it more attractive for EGCs to go public by significantly reducing certain financial reporting and SEC disclosure requirements for these smaller, emerging companies for a specified period of time (thereby presumably saving the company substantial compliance costs).

IPO On-Ramp

Title I of the JOBS Act relaxes certain offering, disclosure and compliance requirements for a class of companies categorized as EGCs. An EGC is defined as any issuer with less than $1 billion in revenues for its most recently completed fiscal year.

IPO Reforms

Among others, Title I of the JOBS Act provides the following relief for EGCs:

Audited Financial Statements: An EGC will need to provide no more than two years of audited financial statements in its IPO registration statement. In any other registration statement, periodic or other report filed with the SEC, an EGC will not need to present selected financial data for any period prior to the earliest year for which audited financial statements were provided for its IPO. [footnoted omitted]

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Phillip J. Kardis II is a partner at K&L Gates. Mr. Kardis has a broad range of experience in assisting clients with complex corporate, securities and financing transactions, especially transactions involving mortgage REITS and financial assets (such mortgage loans, servicing rights, auto loans, and SBA Loans), including public offerings (debt and equity), private placements, private equity, asset-back secured lending, joint ventures and other investment vehicles, mergers and acquisitions, asset-backed securitizations, going private transactions, REIT conversions, and debt offerings. He has represented several Wall Street investment banks, mortgage and specialty auto finance companies, REITs, broker-dealers and a variety of technology companies. Mr. Kardis also advises companies on compliance with Regulation AB and is a frequent speaker on Regulation AB matters.

Robert K. Smith is of counsel in the firm's Washington, D.C. office. He focuses his practice on corporate and securities matters, including a broad range of capital markets activities (including representing both issuers and underwriters in securities offerings, including IPOs), securities regulatory and compliance advice, corporate governance matters, restatements, merger and acquisition transactions and general corporate matters.

Barry Spatzer focuses his practice on securities offerings, mergers and acquisitions, and other general corporate matters.