U.S. laws regulating equity investments were put on the books back in the Great Depression era. While the original goal of protecting investors remains an important one, some of these regulations have failed to keep up with the times.
In an increasingly rare demonstration of bipartisan cooperation, Congress passed the Jumpstart Our Business Startups Act or JOBS Act in March 2012. The law, which President Barack Obama signed in April 2012, pulled together a number of legislative proposals designed to ramp up funding of small businesses.
This week, one of the key JOBS Act provisions took effect. The rule lifts the decades-old ban on public advertisements for private placement deals. Now private firms can market their placements broadly-not just through advertising, but also on platforms such as company websites and social media.
As reporter Thomas Adams describes in this week's issue, the new rule is a boon to companies like Rochester-based Broadstone Real Estate, which manages commercial and residential properties in 27 states. It will enhance Broadstone's ability to raise equity capital while also reducing the cost.
Some skeptics have argued that by loosening such investment-related regulations the JOBS Act will open the door to abuse. But key protections remain. For example, while private firms now will be able to market private placement deals to the general public, they still will not be able to accept money from anyone other than accredited investors-those with net worth exceeding $1 million (excluding the value of a primary residence) or annual income exceeding $200,000 for an individual or $300,000 for a couple.
Other JOBS Act provisions already in effect also have helped Broadstone-for example, the rule change allowing firms to have more than 500 shareholders and remain private.
The part of the JOBS Act that arguably has attracted the most attention-one that clears the way for investment crowdfunding-is still on the sidelines, awaiting rules from the Securities and Exchange Commission. Some backers have grown impatient with the pace of the JOBS Act rollout, but it makes sense to take the time to do it right.
Maintaining adequate safeguards while encouraging investment activity can be tricky. So far, the JOBS Act seems to have the balance about right.
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