How Foreign Issuers Benefit from the JOBS Act

As the Securities and Exchange Commission ("SEC") finishes the rule making that provides a structure for full implementation of the JOBS Act, much has been written about its impact on going public transactions and foreign issuers. Less has been said about the benefits it may confer on foreign issuers trading in U.S. markets.

Emerging Growth Companies

Foreign issuers, like their U.S.-based counterparts, may be defined as an "emerging growth companies" under the JOBS Act if they have less than $1 billion in annual gross revenues, have not raised more than $1 billion in debt, and have not conducted an SEC registered public offering prior to December 8, 2011. If they wish to make an initial public offering, the securities laws provided them with relaxed disclosure requirements.

The JOBS Act provides foreign issuers with the opportunity to "test the waters" with potential institutional accredited investors prior to filing a registration statement, confidential SEC review of draft registration statements, and reduced auditor and accounting requirements.

Rule 506(c)

Under the JOBS Act Rule 506(c) of Regulation D provides domestic and foreign issuers with the opportunity to engage in general solicitation and advertising of the offering including during going public transactions. Until Rule 506(c), general solicitation and advertising was prohibited in all private offerings; they are still not allowed in any offering in which non-accredited investors may participate.

Under Rule 506(c), companies may advertise their securities on television, on the radio, in the social media, at seminars and more. Although these advertisements will necessarily be broadly disseminated, issuers can accept funding from accredited investors only. They must take "reasonable steps" to ensure that those investors meet the definition of "accredited."

An accredited investor is:

a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person; or a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.

The SEC suggests methods companies can use to make the correct determination. They may, for example, ask to review investors' tax returns, or bank or brokerage statements; they could also request written confirmation from a broker-dealer, registered investment adviser or CPA.

While making sure investors are genuinely accredited is an added burden, the advantages of engaging in general solicitation and advertising are considerable, especially for foreign issuers that lack a strong presence in the U.S.

Crowdfunding

Crowdfunding is another type of exempt offering made available to small companies though another of the JOBS Act's provisions. Foreign issuers, however, will not be eligible to use crowdfunding, along with SEC reporting companies, blank check companies, delinquent SEC filers, and others.

Foreign issuers wishing to raise capital should give thought to the new options provided by the JOBS Act. A qualified securities attorney can help identify the most suitable type of exempt offering for individual companies.