JOBS Act Passed, With Additional Investor Protections

Minutes ago, startup financing bill JOBS Act passed the Senate 73-26, with an amendment to further protect investors.

The bill, which we discussed here, seeks to ease the way for startups to access investment capital through provisions that address the transition between being a privately held company and a publicly traded one — eliminating the 500 shareholder cap, allowing general solicitation and crowdfunding,  creating an IPO onramp — and provides startups with more financial pathways to success.

Concerns that greater access to investments — especially through the crowdfunding provision in the bill — prompted fears from many quarters that investors would be opened up to fraud, or worse, that a “free-for-all” environment for investing in startups would create a reiteration of the dot-com bubble burst. An amendment offered by  Sens. Merkley (D-OR) and Brown (R-MA) passed along with the bill which addresses these concerns.

The amendment requires companies raising up to $1 million to be transparent with potential investors about certain financial information, and prevents investors with an income lower than $100,000 from investing more than 5% of their annual income.

JOBS Act always called for “reasonable protection” of investors against fraud, and now the Merkley/Brown amendment further distinguishes what safeguards will be extended on behalf of investors. Another amendment offered by Sen. Reed (D-RI) that changed the definition of the “emerging growth companies” that JOBS affects was rejected.

The Merkley/Brown amendment means the bill will go back to the House before being signed into law by the President. We’ll be tracking.

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