Jumpstart our business startups Act or popularly known as the JOBS Act which is seen as a relaxation for small enterprises and new startups in terms of eased regulations of listings , simpler rules for raising capital and investments in community banks might not so easily let these firms so easily off the hook.
The new bill which lets private companies to have 1000 shareholders before its forced to go public up from the earlier number of 500 , helps entrepreneurs generate “crowd-fund” by pooling money from investors and also advertise for the same , places the new entrants in the “ emerging growth companies” and relieves them off the complete regulation of the Security and Exchange Commission , besides few other norms.
These frees the firms from regulatory norms of the financial authorities to some extent besides spending too much on internal audits . But it doesn’t free the CEO and the CFO in case the regulators or the investors sue them in cases of frauds . Even though companies with revenue of less than a $1 billion will be exempted from outside audits but the accounting systems have to be maintained to the standards under Sarbanes Oxley in 2002. The managements still have the liability to report about its internal control system in its 10-K .
Whether or not it raises the risks for senior executives is still to be seen . Negligence of book keeping wil come under default and shall be punished or not following best practices will definitely impact the stocks of the company as it comes under “less than premium “ category . The investors on the other hand are likely to scrutinize their investments more diligently since in the absence of an external audit the companies could misstate their numbers . The share holders and fresh investors will be more demanding of the companies to show accounting or prove the numbers making the tasks of the top notch a little more uncomfortable. So the return of the Wild west or any such hopes , can very well be laid off.
But there are fears that when even with stringent rules of auditing and laws on disclosures under the Sarbanes Oxley didn’t seem to prevent the scandals in accounting , the loose rules could more often than not make procedures fall . There have been a series of delistings , probes against firms , lawsuits being filed and innumerable trading halts in the recent few years . So how much effect JOBS Act shall have on easing growth for entrepreneurs or making them commit defaults , time will tell.