WASHINGTON – The House moved Wednesday to make it easier for small companies and banks to raise capital — and presumably spur economic growth — without being faced with costly federal registration rules.
The two measures, which passed with bipartisan support, allow small companies to sell more shares to potential investors and community banks to increase the number of shareholders they can have before they have to register with the Securities and Exchange Commission.
The bills are part of four measures the House is taking up this week to ease SEC registration rules that have been seen as an impediment to small businesses attracting investors and expanding their operations.
Republicans say the measures are examples of how the party is trying to work with the White House to promote jobs. President Barack Obama has urged Congress to ease restrictions on raising capital. Democrats supported the bills but criticized Republicans for blocking larger Democratic-backed proposals to stimulate the economy.
One bill, H.R. 1070, passed on a 421-1 vote, would raise from $5 million to $50 million the ceiling for shares a private company can sell as part of a public offering before having to register with the SEC. The $5 million threshold was set in 1992 and small businesses have complained that it is too low to make going public worthwhile. Economists also argue that it has resulted in a decline in small initial public offerings used by entrepreneurs to access capital they need to build up businesses.
Bill sponsor Rep. David Schweikert, R-Ariz., said there was "almost a crisis ... in the number of companies that aren't going public anymore." He said that last year there were only three companies in the country that went public with less than $5 million in public offerings and the number of publicly traded companies on the big exchanges has dropped from 8,823 in 1997 to 5,091 today.
The second bill, H.R. 1965, raises from 500 to 2,000 the number of shareholder investors a community bank or other institution can have before being required to register with the SEC or go public. It also increases from $1 million to $10 million the value of a company's assets that trigger SEC registration. It passed 420-2.
Rep. Jim Himes, D-Conn., who sponsored the bill with Rep. Steve Womack, R-Ark., said it would allow "these small banks to pick the optimal moment at which they go public, to allow them to continue to raise money in the private markets from private investors until such point that it makes sense for them to register and go public."
One of the other SEC bills that the House will take up on Thursday and Friday would end the SEC ban on small, private companies using advertising to attract investors in stocks, bonds or other securities. The other would remove restrictions on "crowdfunding," a method of attracting a large number of small-scale investors through social networking on the Internet. It allows companies to accept and pool donations up to $1 million — or $2 million if the company provides certain financial information — without registering with the SEC.
Senate Financial Services Committee Chairman Spencer Baucus, R-Ala., applauded the Congress for putting aside partisan differences and passing bills "which will create jobs and they'll do so without government expense."
But second-ranked Democrat Steny Hoyer of Maryland, while lauding the Himes bill for "lifting a significant regulatory burden on our community banks" and making it easier for them to raise capital, told reporters that Republicans continue to erect obstacles to meaningful jobs legislation.
The bills now go to the Senate, where similar bills have been introduced.
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