The Reopening American Capital Markets to Emerging Growth Companies Act of 2011 – the Schumer-Toomey bill
The decline in the number of smaller company IPOs has been the subject of recent analysis and debate in the United States and, to a lesser extent, in the United Kingdom. See, for example, our post of November 2011 on ”Encouraging companies to float: Report of the U.S. IPO taskforce” and our posts on recent reports from Grant Thornton and PwC. Now a bill has been introduced to the U.S. Senate which is designed to make it easier for smaller companies to go public.
The “Reopening American Capital Markets to Emerging Growth Companies Act of 2011″, or more handily the Schumer-Toomey bill (after the two leading senators who are sponsoring it) is a bipartisan bill that aims to create a transitional “on ramp” status for companies that are going public. In essence, a period in which recently-floated companies do not need to comply with the full range of U.S. securities laws. As summarised on Senator Toomey’s website, the bill would:
1. Create a new category of “Emerging Growth Companies” which would have up to five years to comply with certain regulatory requirements.
2. Suspend the Sarbanes-Oxley requirement for an external auditor to sign off on the company’s internal controls and procedures.
3. Require audited financials for only two (rather than three) years before a registration with the Securities and Exchange Commission.
4. Provide limited exemptions from executive compensation votes and disclosures.
5. Allow underwriters to publish research on companies pre-IPO (i.e. eliminate the current “quiet period” for underwriter research).
6. Expand the range of permissible pre-SEC filings to institutional investors.
The bill is supported by the NYSE and by the National Venture Capital Association but, as the Wall Street Journal reports, is likely to opposed by investor protection advocates.
In the United Kingdom there is some movement, albeit it at a much earlier stage, to change a regulatory structure that is seen as discouraging smaller company flotations – see, for example, the comments by the Quoted Company Alliance in this article in today’s Times.
In the U.S., see also the Small Company Capital Formation Act.
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