Washington, DC – Today, Rep. Anna G. Eshoo (D-Palo Alto) voted to pass the Small Company Capital Formation Act, bipartisan legislation she sponsored with Rep. David Schweikert (R-AZ). The bill would increase the offering limit from $5 million to $50 million under SEC Regulation A, which was enacted during the Great Depression to facilitate the flow of capital to small businesses.
“I’m proud to represent the innovation capital of our country, Silicon Valley, where we know if we don’t constantly innovate, we will stagnate,” said Rep. Eshoo. “In these difficult economic times, it’s critical for Congress to facilitate capital formation and bolster American innovation.
“$5 million falls far short of what many companies require to develop the cutting-edge technologies needed in today’s economy. It’s outdated, it fails to serve its intended purpose and that’s why this legislation is needed. What better time than now, when our economy needs this important boost.”
“Small businesses are the backbone of job growth in our country. Taking a small business public is an important, but expensive process that requires millions in underwriting costs,” said Rep. Schweikert. “This bill relieves companies from these costs and excessive burdens and will assist them in efficiently raising funds to hire new employees. I am glad my colleagues stand with me in unwinding regulation to make our capital markets more vibrant and competitive.”
Regulation A was established as part of the 1933 Securities Act and was designed to provide regulatory relief for small firms that want to sell shares of company stock. These “mini offerings” have been used to help small companies raise capital and test the water for future initial public offerings.
Unfortunately the Regulation A threshold has been stuck at $5 million since 1992. At such a low level, the benefit of a Regulation A offering is extremely limited. In fact, only three companies took advantage of it in 2010.
In December 2010, Eshoo testified before the House Committee on Financial Services Hearing about the need to increase the offering limit under “Regulation A.” To read her testimony, please click here.
Eshoo also led the Bay Area Congressional delegation in a February 2011 letter to President Obama , and March 2011 letter to Chairwoman Mary Schapiro urging the Administration to exercise its authority under Section 28 of the Securities Act to raise the Regulation A offering limit.
President Barack Obama has included this legislation in his bipartisan American Jobs Act and said in his joint session to Congress addressing jobs that, “We needed to cut away the red tape that prevents too many rapidly growing startup companies from raising capital and going public.”
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