The Good the Bad and the Ugly Truth about the JOBS Act

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It's about jobs.

I'm not just talking about the upcoming election and who is promising to do more to stimulate the economy. The entire future of America depends on job creation.

There are good and bad reasons why there aren't enough jobs.

Jobs have been lost because of advances in technology. Jobs have been lost because they've been outsourced.

Jobs aren't being created because banks aren't readily lending to entrepreneurs and businesses, and entrepreneurs and businesses supposedly aren't hiring because there are too many regulations and the future is uncertain.

All the reasons why there aren't enough jobs in America can be argued from both sides. And, while that's being done, arguing isn't doing anything for the unemployed.

Fortunately, there is a light at the end of the tunnel.

There is a pathway open, and hopefully soon to be widened, that bypasses all the arguments and does what our bickering partisan politicians can't do, create good jobs in areas where American ingenuity has always outshined the rest of the world.

The Promise of the JOBS Act

The Jumpstart Our Business Startups Act or JOBS Act was signed into law on April 5, 2012 and is the single best hope America has of regaining its preeminence in the world.

The JOBS Act has good, bad and ugly elements…

Today I'll make a simple case for what's good, if not great, about the JOBS Act. And next week I'll address what's bad and ugly in the Act and what should be done to fix what's wrong with it.

It really is simple. Entrepreneurs need to raise money for start-ups. They can borrow from friends and relatives, they can go to banks, or they can go to well-heeled investors to get seed money and more. Investors can be angel investors acting as part of a group, or they can be individuals looking for business opportunities they hope will make them money.

The pathway to investor interest and tapping their vast pools of money is mostly through the "private placement" arena.

Currently, there are provisions in securities laws that allow start-ups and operating businesses to raise money from "private" investors as opposed to raising money through a "public" offering, in other words through an IPO, initial public offering.

But the JOBS Act makes raising money quite a bit easier.

Its Regulation D is an exemption that basically says, if you want to raise money but don't want to "register" your "securities" or offering with the S.E.C. and have to file a sickening amount of paperwork, you can do it if you only have a limited number of investors and they are mostly, if not all, "accredited."

These private placement offerings are also called Rule 506 offerings. They are a gigantic source of funds for start-ups and operating businesses.

According to the SEC, "in 2011, Rule 506 offerings were estimated to be $895 billion compared to $984 billion raised in registered offerings. In 2010, the numbers were $902 billion in 506 offerings versus $1.07 trillion in registered offerings. Clearly Rule 506 offerings have a large impact on the US economy."

What's good in the JOBS Act is that these types of offerings can now be advertised and "general solicitations" are allowed, as opposed to the previously onerous requirement that every potential investor a business was wooing had to have a "pre-existing" relationship with the businessperson looking for investor capital.

The new rules about what constitutes general solicitation and how advertising can be used to woo investors are still being worked on, but so far what's been coming out of the SEC has been very promising.

Entrepreneurs Drive Job Creation

Making it easier for American entrepreneurs to reach out to the public to stimulate interest in businesses that, if successful, will no doubt hire many, many people and drive the U.S. economy in terms of innovation and growth is exactly what we need.

So far the JOBS Act hasn't been the engine of business and job creation that it will be, but that's mostly because the rules are still on the drawing board.

Another rule that's being better defined and refined is what or who is an "accredited" investor. The exemptions from having to register offerings include the requirement that investors who want to participate in these offerings have a substantial enough net worth and are sophisticated enough that they can make sound judgments and decisions about where they put their money. And, that's a good thing.

We'll see shortly what the SEC will do to define an accredited investor. At present an accredited investor is a person with a net worth of over $1 million or an income of $200,000 in each of the past two years ($300,000 if you file jointly) and has a reasonable expectation to make the same in the current year.

The JOBS Act goes a long way to make it easier to raise money. And raising money to start new businesses, to create new industries and drive America forward is critical to all of us, especially where we are at this point in our economic history.

Next week I'll touch on what' problematic in the JOBS Act and address how those issues can be fixed.

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About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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  1. R Tuggle | September 27, 2012

    That all sounds fine but until we have usefull regulations meaning limited and well thought out (not written by a 30 year bureaucrat) and reward success not tax it real job growth will be limited.

  2. Bob Logan, New York, NY | September 27, 2012

    The "Jobs Act" is just what it is, AN ACT, not something that really functions. You may use my idea that I have shared with all of my representatives and several offices of the US government. The only office that responded was the USPTO where one of the most diligent officers, David Kapplo serves.
    I am an inventor, everyday there are inventions being processed by the USPTO for patents and Trademarks. A substantial portion of this are small entities, not big corporations of which about 49% are from countries o;ther that the USA. I suggest that the Dept. of Commerce offer every small entity who han acquired a patent an amout of money for a 3 to 5 year period provided the SE company produces the invention in the USA and hires only USA citizens. If it is succesful after 3 or 5 years there is no payback to the Deparment of Commerse. If it fails the executive staff will be terminated and it will be offerred to large corporation for the amount put forth by the Dept. of Commerce plus interest on same. The line employees will be retained by the buying corporation. This method is the way to creat job in the USA for the USA. I would really appreciate your thoughts on this procedure. Bob Logan

  3. G Douglas | September 28, 2012

    It all began with Clinton and his NAFTA. Remember Ross Perot warned what would eventually happen and it has. Money goes and stays where it is treated best. I myself am an entreupeneur, but in the current administrations quest to socialize America, I feel the risk is not worth the reward.

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