Pending U.S. Bill May Help Small Cos. Go Public

The Small Company Capital Formation Act of 2011-which will amend the Securities Act of 1933 and exempt small companies from certain rules when completing an initial public offering-is reportedly expected to clear the Financial Services Committee this year.

A pending bill that was designed to help small companies in their journey to go public is close to becoming reality, according to the Star Tribune.

The Minneapolis newspaper reported that the Small Company Capital Formation Act of 2011 is expected to clear the Financial Services Committee this year, paving the way for small companies to go public.

The bill, which was introduced in the U.S. House of Representatives in March, seeks to amend the Securities Act of 1933. Currently, companies raising less than $5 million are exempt from registration under the Securities Act of 1933, or granted a Regulation A exemption. The new bill would increase the threshold and allow companies that raise up to $50 million to qualify for the exemption.

According to the Star Tribune, a Regulation A exemption makes it less expensive for companies to complete an initial public offering because they can avoid costly state-by-state filings, including audited financial statements.

Jarod Allerheiligen-managing partner of the Minneapolis office of accounting firm Grant Thornton, LLP, which is reportedly lobbying in favor of the bill-told the Star Tribune that initial public offerings by small companies have “virtually disappeared.”

“While the increased costs of complying with the Sarbanes-Oxley Act [of 2002] are frequently cited, the true causes lie in the numerous regulatory changes . . . intended to increase transparency [that] instead ruined the underlying structure of the market,” Allerheiligen told the Star Tribune. “The reality is that entrepreneurs no longer have as vibrant of an IPO market . . .”

If the bill passes, it won't be the first time that the exemption threshold has been increased. According to San Francisco-based law firm Morrison & Foerster, LLP, the initial exemption threshold of $100,000 was increased over the years to the current $5 million, which was set by the U.S. Securities and Exchange Commission in 1992.

Click here to read more in the Star Tribune about the bill.