Congressional update: Six new capital formation bills you should know about

Congress has been busy this spring introducing various bills that relate to capital formation. Here are the highlights:

H.R. 78 – Regulatory Accountability Act. The purpose of this bill is to provide regulatory relief to companies regulated by the Securities and Exchange Commission (“SEC”). This includes both large corporations whose securities are traded on a national exchange and small businesses who issue ownership units are considered “securities” under the Securities and Exchange Act. The bill seeks to amend the Act by requiring the SEC to do a cost-benefit analysis before issuing any new regulations, consider available alternatives to new regulations, ensure that any new regulation is written in plain language, and periodically review existing regulations to determine if they are ineffective or burdensome. Read the bill here.

H.R. 531 – S-Corp Access to Crowdfunding Act. This bill seeks to do exactly as it is titled: amend the Internal Revenue Code of 1986 to make an exception to the 100 shareholder S corporation limitation in the case of shareholders whose shares were acquired through certain crowd-funding or small public offerings. If passed, this bill would provide a means for s-corps to surpass the “100 shareholder rule” by changing the way they raise capital up front. Read the bill here.

H.R. 910 – Fair Access to Investment Research Act. Like H.R. 78, this bill directs the SEC to engage in certain rulemaking. Specifically, it directs the SEC to establish a “safe harbor” for certain investment fund research reports published by brokers and dealers. It instructs the SEC to create a rule that excepts these reports from the definition of “offer” under certain portions of the Securities and Exchange Act, thereby saving the brokers and dealers from potentially being subject to the registration requirements of the Act. Notably, the bill states that the SEC must prohibit a self-regulatory organization from maintaining or enforcing a rule that would prevent a member from (1) publishing or distributing a covered investment fund research report merely because the member is also participating in a registered offering of the fund, or (2) participating in a registered offering of a covered investment fund merely because the member has published a research report about the fund. Read the bill here.  

H.R. 1343/S. 488 – Encouraging Employee Ownership Act. This bill seeks to require the SEC to increase the 12-month sales threshold beyond which an issuer is required to provide investors with additional disclosures related to compensatory benefit plans from $5 million to $10 million. Read the bill here.  

S. 444 – Supporting America’s Innovators Act. This bill seeks to amend the Investment Company Act of 1940 by exempting a qualifying venture capital fund that has no more than 250 investors from the definition of an “investment company,” saving it from certain limitations imposed by the Act. The bill is directed at venture capital funds that have less than $10 million in aggregate capital contributions and uncalled committed capital. Read the bill here.  

H.R. 1312 – Small Business Capital Formation Enhancement Act. This bill proposes an amendment to the Small Business Investment Incentive Act of 1980 by requiring the SEC to review the findings of the annual government-business forum and make public recommendations to address problems and programs related to the capital formation of small businesses. Like H.R. 78, this bill signifies a desired policy change and calls for the SEC to focus on business growth and potential regulatory relief. Read the bill here.   

If you have questions about how these bills could affect your business, contact Laura Wasson. 

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed. 

- Laura Wasson