Jumpstart Our Business Startups (JOBS) Act Exempts Emerging Growth Companies from Certain Compensation-related Reporting Requirements | Practical Law

Jumpstart Our Business Startups (JOBS) Act Exempts Emerging Growth Companies from Certain Compensation-related Reporting Requirements | Practical Law

The House of Representatives and the Senate each passed the Jumpstart Our Business Startups Act (JOBS Act), which aims to facilitate business formation by reforming certain aspects of the laws and rules governing the US capital formation process. President Obama is expected to sign the JOBS Act on Thursday, April 5th.  Among its other provisions, the JOBS Act exempts emerging growth companies from several executive compensation reporting requirements otherwise required by the Dodd-Frank Act. 

Jumpstart Our Business Startups (JOBS) Act Exempts Emerging Growth Companies from Certain Compensation-related Reporting Requirements

by PLC Employee Benefits & Executive Compensation
Published on 02 Apr 2012 • USA (National/Federal)
The House of Representatives and the Senate each passed the Jumpstart Our Business Startups Act (JOBS Act), which aims to facilitate business formation by reforming certain aspects of the laws and rules governing the US capital formation process. President Obama is expected to sign the JOBS Act on Thursday, April 5th. Among its other provisions, the JOBS Act exempts emerging growth companies from several executive compensation reporting requirements otherwise required by the Dodd-Frank Act.
The House of Representatives and the Senate each passed H.R. 3606, the Jumpstart Our Business Startups Act (JOBS Act), which is intended to increase job creation and economic growth by improving emerging growth companies' access to the public capital markets. President Obama is expected to sign the JOBS Act on Thursday, April 5th. Among other reforms and provisions, the JOBS Act makes it easier for emerging growth companies to go public by providing them with relief from certain executive compensation reporting requirements otherwise required by the Dodd-Frank Act. This update covers only the executive compensation provisions of the JOBS Act. For information on other JOBS Act provisions, see Legal Update, Congress Passes Capital Formation Reform Bill (JOBS Act).

On-ramp to the Capital Markets for Emerging Growth Companies (IPO On-ramp)

The JOBS Act will make it easier for emerging growth companies to go public by exempting them from certain federal securities regulations, including certain compensation-related reporting requirements. The IPO On-ramp provisions are immediately effective.

Definition and Status of Emerging Growth Companies

The JOBS Act creates a new category of "emerging growth company" which it defines as a company with annual gross revenues of less than $1 billion during its most recently completed fiscal year. This definition does not exclude foreign private issuers. A company will retain emerging growth company status and the reduced regulatory and reporting requirements associated with it until the earliest of:
  • The last day of the first fiscal year during which it had annual gross revenues of $1 billion or more.
  • The last day of the first fiscal year following the fifth anniversary of its initial public offering (IPO).
  • The date on which the company has, during the previous three-year period, issued more than $1 billion in non-convertible debt.
  • The date on which the company is deemed to be a large accelerated filer.
Even if it meets the criteria set out in the definition above, an existing public company will not be deemed an emerging growth company if it completed its IPO on or before December 8, 2011.

Exemptions for Emerging Growth Companies from Certain Executive Compensation Reporting Requirements

The JOBS Act facilitates the IPO process for emerging growth companies by exempting them from:
  • Sections 14A(a) and (b) of the Securities and Exchange Act (Exchange Act), implemented by Section 951 of the Dodd-Frank Act, which require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation.
  • Section 14(i) of the Exchange Act (which has not yet been implemented), which requires companies to disclose the relationship between executive compensation actually paid and the financial performance of the company.
  • Section 953(b)(1) of the Dodd-Frank Act (which has not yet been implemented), which requires companies to disclose the ratio between the annual total compensation of the CEO and the median of the annual total compensation of all employees of the companies.
  • The requirement to provide certain other executive compensation disclosure under Item 402 of Regulation S-K. Instead, an emerging growth company must only comply with the more limited provisions of Item 402 applicable to smaller reporting companies.
A company may elect to forego the above exemptions and comply with the requirements that apply to non-emerging growth companies.
The JOBS Act also directs the SEC to analyze current disclosure requirements in Regulation S-K and determine how they can be updated, modernized and simplified to reduce the burden on emerging growth companies.