|June 1, 2012|
Previously published on May 2012
The recently enacted Jumpstart Our Business Startups Act, or JOBS Act, created the "IPO On-Ramp" provisions to ease the burden of becoming and being a public company for certain small and medium sized companies. An "emerging growth company" will be able to take advantage of the benefits of "IPO On-Ramp" as well as benefits from the JOBS Act once it becomes public.
An emerging growth company is a company with less than $1 billion in revenues for its most recently completed fiscal year. Such company will remain as an emerging growth company until the earliest of (i) the end of the fiscal year in which its revenues equal or exceed $1 billion, (ii) the end of the fiscal year following the fifth anniversary of the IPO; (iii) the date on which the company has issued more than $1 billion in non-convertible debt over the prior three-year period; or (iv) the date on which the company becomes a "large accelerated filer" under the Securities Exchange Act.
The IPO On-Ramp allows an emerging growth company to engage in oral or written communications with potential investors that are qualified institutional buyers or accredited institutional investors either before or after filing a registration statement. Thus, an emerging growth company has the opportunity to test the waters before actually going public and to assess the interest in and the success of the IPO.
An emerging growth company may confidentially submit a draft of the registration statement with the Securities and Exchange Commission ("SEC") for review. The SEC will comment and the emerging growth company may confidentially file amendments in response to the comments, provided that such filings are publicly filed with the SEC at least 21 days prior to the start of the company's road show.
The IPO On-Ramp is expected to reduce the costs of going public by easing regulatory requirements. For example, an emerging growth company would only need to provide two years, rather than three years, of audited financial statements in the registration statement. In addition, an emerging growth company would only need to disclose compensation information with respect to the CEO and the two highest paid executives, rather than to disclose compensation information with respect to five executives.
Post-IPO requirements such as compliance with new or revised financial accounting standards, independent auditor attestation and executive compensation disclosure have also been reduced.
By allowing easier access to the IPO market, the IPO On-Ramp provides small and medium sized companies a new method to raise capital that might not have been considered prior to the enactment of the JOBS Act.