"Accredited investors" are defined by the SEC as individuals or couples whose net worth "exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person. Or, if he or she has 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."
While the new rule will curtail the potential pool of investors, freeing issuers to advertise the offerings is sure to help move capital to where it is needed.
Another aspect of the JOBS Act that should make it easier for local businesses to attract capital is the easing of the rules that require companies with more than 500 shareholders to register with the SEC. Kaplan says that "the JOBS act has increased that number to 2000, as long as no more than 500 investors are classified as non-accredited investors. The SEC still has to make some rules over determining who is accredit and not."
The community based aspect of some of the new fundraising that will be allowed by the JOBS Act -- once the rules are implemented -- also promises to bring the "social media revolution" to investing. Companies will have an easier time building a loyal base of local investors, many of whom can also be customers.
"Raising money locally not only creates community involvement, it creates transparency that has eluded the local market, which has been limited to private investments," says Kaplan. "Private transactions meant that once the offering was closed, the company wasn't subject to reporting requirements. Now people are going to be involved, they are going to understand these businesses."
The sky is blue.
Each state has its own securities filing requirements, known as "Blue Sky Laws."
According to Zuppone, "the most significant decision for the SEC to make is what to do with the application of Blue Sky regulation, because there was a study as part of the JOBS Act, which indicates that if you have to qualify for an offering with 50 state Blue Sky regulators, nobody is going to take advantage of the new exemption."