As small businesses across the country continue to search for reliable sources of capital, Congress has fallen short of providing real solutions. While there is no magic bullet that will free up much needed capital, there are some small steps that can be taken immediately to aid in capital formation for some small businesses. H.R. 1070/S. 1544, the “Small Company Capital Formation Act of 2011” would reduce the filing and compliance burdens for certain small businesses that seek to raise capital through a public offering of stock. Simply put, this bi-partisan legislation would increase this $5 million limitation up to $50 million. The concept of this legislation also has been endorsed by the Obama Administration.
Regulation A was adopted by the Securities and Exchange Commission to establish simplified procedures for a small company to raise capital through a public offering of stock. Congress authorized the SEC to create the Regulation A exemption in 1933, because it recognized the economic benefit of helping small businesses secure capital through public offerings of securities. Under the current requirements, a company is permitted to raise up to $5 million under the Regulation A streamlined filing requirements; however, this $5 million limitation has not been updated since 1992.
Certainly this legislation will not benefit all small businesses. However, it is a simple and common sense approach that will promote capital formation for some small companies and generate jobs that our country so desperately needs. Taking a company public is an expensive process that can require millions in underwriting costs. Additionally, many companies, especially those in the high tech sector, require more capital up front to make ventures successful. At a time when so many small businesses are in need of capital, this is a commonsense proposal that will help make our capital markets more vibrant and competitive.
Clearly, this legislation will make it easier for entrepreneurs to raise capital and create jobs. CompTIA supports this legislation and urges Congress to pass this common sense adjustment of an outdated limitation established almost 20 years ago.