The New Regulation of Small Business Capital Formation: The Impact - If Any - Of the Jobs Act

Rutheford B. Campbell Jr.

University of Kentucky - College of Law

April 30, 2014

Kentucky Law Journal, Forthcoming

An efficient access to external capital by businesses is essential to a market economy. Small businesses, which amount to a vital component of our market economy, face not only structural and economic disadvantages but also legal obstacles in their search for essential, external capital.

The Titles II, III and IV of the Jobs Act were designed, at least apparently, to ameliorate inefficient legal rules governing small businesses’ access to external capital. While the act itself is not without challenges and significant misdirection, it offered the Commission an opportunity to construct regulatory regimes that materially enhance efficient, small business capital formation. The Commission, however, has failed to take full advantage of this opportunity.

Title II of the Jobs Act, as implemented by Commission regulations, changes Regulation D to permit a broad solicitation for investors in Rule 506 offerings. That change amounts to an efficient improvement that will provide some benefit to small businesses in search of external capital. A requirement for the exemption provided by the revised Rule 506, however, is that sales must be restricted to accredited investors only, and that by definition is a limited source of capital for small businesses.

Without significant changes to the Commission’s proposed rules implementing Title III (crowdfunding), the crowdfunding exemption will be less available for small business issuers than efficiency would require. The Commission’s proposed rules are plagued by excessive disclosure requirements for small offerings, integration complications, and unmanageable risks created by actions of intermediaries.

Without significant changes to the Commission’s proposed rules implementing Title IV (popularly called Regulation A-Plus), the exemption provided by Regulation A-Plus will be essentially unavailable for small businesses. This is due to excessive disclosure requirements for small offerings and, more importantly, the failure to provide an effective preemption of state authority over small Regulation A-Plus offerings.

The problems regarding the proposed crowdfunding regulations and the proposed Regulation A-Plus regulations are fixable, if the Commission has the will.

Number of Pages in PDF File: 45

Keywords: S.E.C., SEC, Securities and Exchange Commission, business, small business, Job Act, external capital, capital, Regulation D, Rule 506, crowdfunding, crowd funding, Regulation A-Plus

JEL Classification: K22

Open PDF in Browser Download This Paper

Date posted: May 9, 2014  

Suggested Citation

Campbell, Rutheford B., The New Regulation of Small Business Capital Formation: The Impact - If Any - Of the Jobs Act (April 30, 2014). Kentucky Law Journal, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2434264

Contact Information

Rutheford B. Campbell Jr. (Contact Author)
University of Kentucky - College of Law ( email )
620 S. Limestone Street
Lexington, KY 40506-0048
United States
Feedback to SSRN

Paper statistics
Abstract Views: 969
Downloads: 151
Download Rank: 145,141
Paper comments
No comments have been made on this paper

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 2.484 seconds