House Panel Approves Access to Capital for Job Creators Act

The House Capital Markets and Government Sponsored Enterprises Subcommittee has approved the Access to Capital for Job Creators Act.

The legislation, H.R. 2940, removes the regulatory ban that prevents small, privately held companies from using advertisements to solicit investors for private offerings. Securities laws not only prohibit general solicitation and advertising but require investors to have an existing relationship with the company in order to meet SEC exemption requirements. This ban has limited the ability of small businesses to raise capital, according to its proponents.

In effect, its proponents explained, the “bill would widen the universe of potential investors for small businesses allowed under the Securities Act of 1933 without subjecting these businesses to the onerous costs of registration with the Securities and Exchange Commission (SEC).” As a result, small businesses would have increased access to capital, allowing them to grow and create jobs at a time when persistently high unemployment plagues our nation’s economy.

Legislative Background

Any company looking to sell securities must register with the SEC or meet qualifications under Regulation D of the Securities Act of 1933 in order to be exempt from SEC registration. Regulation D exemptions are designed so that small companies can access capital markets without bearing the costs of SEC registration. Under Rule 506 of Regulation D, certain companies may be exempt from SEC registration if they meet specific conditions, including a prohibition on “general solicitation.”

The general solicitation prohibition has been interpreted to mean that potential investors must have a pre-existing relationship with an issuer or intermediary before the potential investor can be notified that unregistered securities are available for sale. 

Accordingly, this ban severely hampers the ability for small companies to obtain needed capital from investors, and as a result, many companies are limited to only to the universe of investors with which they clearly have pre-existing relationships. This legislation would remove the solicitation prohibition and allow small businesses to attract capital from accredited investors nationwide, or even globally, in order to grow their company.

H.R. 2940, sponsored by Congressman Kevin McCarthy (R-CA), was approved by a voice vote. The House Capital Markets and Government Sponsored Enterprises Subcommittee is part of the House Financial Services Committee.

Majority Whip McCarthy said, “Small businesses are the engine of the American economy. In order to flourish, entrepreneurs and small business owners need fewer regulatory restrictions and greater access to capital to start and grow companies and get more people working. Unfortunately, onerous federal regulations dampen both innovation and access to capital because of the restrictions and compliance burden they place on these enterprises. That’s why I have introduced HR 2940, the Access to Capital for Job Creators Act, which removes the solicitation prohibition contained in Rule 506 of Regulation D of the Securities Act. This will give small businesses another way to access private capital by allowing them to widely seek funds from the entire pool of wealthy SEC accredited investors without requiring them to go through the full SEC registration process.”

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