House bill to boost businesses
Posted: Wednesday, February 22, 2012 7:00 pm
Washington – This week H.R. 3606 – Reopening American Capital Markets to Emerging Growth Companies Act of 2011 – passed through the full House Committee on Financial Services by a bipartisan vote of 54 to 1.
The legislation would reduce the costs of going public for small and medium-sized companies by easing regulatory requirements.
Over the last 10 years, the number of companies going public has fallen dramatically, hurting the ability of small companies to grow, innovate, and hire new workers.
The legislation creates a new category of issuers, called “emerging growth companies,” that have annual revenues of less than a $1 billion and following the initial public offering (IPO), less than $700 million in publicly traded shares.
Exemptions for these “on ramp” status companies would end either after five years, or when the company reached $1 billion in revenue or $700 million in public float.
“Small companies are our nation’s best job creators, but have been the hardest hit by burdensome regulations. On average, 92 percent of a company’s job growth occurs after an IPO. It is imperative we reduce regulations to help these small companies create private jobs for Americans,” U.S. Rep. Stephen Fincher noted.
The legislation amends Section 404(b) of Sarbanes-Oxley to delay hiring an additional outside auditor to verify the company’s internal controls for the five year “on ramp” period.
Section 404 regulations cost companies over $2 million per year, with Section 404(b) accounting for 32.5 percent of those costs. In addition, this bill would only require Emerging Growth Companies to provide audited financial statements for the two years prior to registration rather than three years, saving the companies millions.
The legislation will also make it easier for potential investors to get access to research and company information in advance of an IPO. This is critical for small and medium-sized companies trying to raise capital that have less visibility in the marketplace.
Currently, there are regulations in place that make it difficult for investors to find the detailed research reports they need to make an informed decision about new companies.