Senator Charles Schumer (D-NY) AND Pat Toomey (R-Pa) announced a bipartisan plan to make it easier for firms to go public so that they may expand and create jobs. The proposal would make it easier for small and medium-sized companies to access capital through public markets.
Studies show that more than 90% of job growth occurs after a company goes public but fewer small and medium-sized companies are going public in recent years. The reason most often given is the regulatory and compliance burdens of going public. In a recent survey conducted by Nasdaq and the National Venture Capital Association, 86% of chief executive officers cited accounting and compliance costs, and 80% cited regulatory risks, as key concerns about going public. Companies are now taking longer than ever to go pubic – an average of 9.4 years, compared to less than 5 years in the 1980s. As a result, rapid expansion and job growth are being delayed.
The Reopening American Capital Markets to Emerging Growth Companies Act of 2011 would reduce the hurdles of an initial public offering by phasing in many of the costliest obligations over time while maintaining key investor protections.
Senator Schumer said, “During difficult economic times, it is critical that we give growing innovators the breathing room that they need to access public markets. The vast majority of job creation occurs after companies go public so it makes sense to make the IPO process easier for emerging firms.”
Senator Toomey said, “In this struggling economy, Congress should do everything it can to make it easier for small businesses to grow and create new jobs. This legislation will make it easier for firms to go public and in turn, create many more jobs.”
The Schumer-Toomey bill would establish a new category of issuers – emerging growth companies – that have less than $1 billion in annual revenues at the time of their registration with the Securities and Exchange Commission and less than $700 million in publicly-traded shares after the IPO. These companies would have up to five years or until they reach $1 billion in annual revenue or $700 million in public float to comply with certain regulatory requirements. These requirements are limited to those that are high-cost and which do not compromise core investor protections or disclosures and include: the requirement that public companies employ an outside auditor; the requirement of audited financials for three years prior to the IPO (reduced to two); and the requirement for a shareholder vote on executive compensation arrangements.
The bill would also improve the flow of information about emerging growth companies to investors before and after an IPO and update restrictions on communications to account for advances in modes of communication and the information available to investors. The bill would allow investors to have access to research reports about emerging growth companies before the IPO. Additionally, the bill would allow emerging companies to gauge interest in the potential offering by expanding the range of permissible pre-filing communications to institutional investors and filing a registration statement on a confidential basis.