Bloomberg News

House Panel Backs Bill Boosting Nonpublic-Firm Shareholder Limit

October 05, 2011

Oct. 5 (Bloomberg) -- A U.S. House panel approved measures that would let closely held firms attract more investors without going public as part of a slate of Republican-backed legislation aimed at spurring economic growth.

The House Financial Services Capital Markets subcommittee gave bipartisan support today to a bill that would increase to 1,000 from 500 the number of shareholders a nonpublic company can have without an initial public offering. The panel approved by voice vote a separate bill that would boost the Securities and Exchange Commission threshold to 2,000 for banks.

“At a time when we need to be creating jobs in this country, we know one of the fuels for jobs is capital,” said Representative Randy Neugebauer, a Texas Republican.

House Republicans are pushing legislation to help startups and smaller firms raise money amid regulatory hurdles and tighter lending standards following the 2008 credit crisis. Shares of such companies are being traded on secondary markets that have emerged since the Sarbanes-Oxley Act of 2002 and last year’s Dodd-Frank Act increased the cost of going public.

President Barack Obama, in his September address to Congress, pledged to “cut away the red-tape” negatively affecting small businesses and SEC Chairman Mary Schapiro earlier this year ordered a broad review of registration and reporting rules to identify areas for improvement.

‘Commonality of Agendas’

“The nice thing here is that this seems to fit a commonality of agendas,” said Representative David Schweikert, the Arizona Republican who sponsored the measure to raise the shareholder threshold. Representative Jim Himes, a Connecticut Democrat, sponsored the measure to increase the limit for banks.

The subcommittee also approved by voice vote a measure sponsored by House Majority Whip Kevin McCarthy, a California Republican, to remove the private company ban on general solicitation of so-called accredited investors, those deemed sufficiently sophisticated to understand offerings.

Even with bipartisan support on the Financial Services Committee, the proposals are not without detractors.

The SEC, in congressional testimony, has noted concerns over the effect the bills would have on investor protection. State securities regulators have objected to two of the proposals on investor protection grounds and have lobbied lawmakers to slow down or reject the proposals, including two that would allow private firms to solicit funds from investors.

‘Radically Deregulate’

“Proposals like these, which would radically deregulate the existing system of investor protection laws, will not be a remedy for the current weak economy,” William F. Galvin, Massachusetts’ top securities regulator, said of the solicitation proposals in an Oct. 2 letter to lawmakers.

Democrats echoed the investor protection concerns voiced by Galvin and raised objections to two of the proposals, including an initiative specifically backed by Obama.

Representative Patrick McHenry, a North Carolina Republican, has sponsored a bill that would permit so-called crowd funding to finance new businesses by letting companies accept and pool donations up to $5 million. The Obama administration has listed crowd funding -- raising money from people who network and pool money to a level of $1 million, as something it supports as part of its September jobs proposals.

“This legislation is a concept that has a certain amount of sex appeal,” said Representative Maxine Waters of California, the senior Democrat on the subcommittee. “However it has not had enough research, nor has it had enough thought, on how we can protect investors.”

While the subcommittee approved the bill 18-14, Representative Scott Garrett, the New Jersey Republican who leads the subcommittee, said he shared some of the Democrats’ concerns and planned to work with them to address issues with the bill before it reaches a vote in the full committee.

The panel also approved, along party lines, a measure sponsored by Representative Stephen Fincher, a Tennessee Republican, that would exemption companies with a public float, or shares available to investors, of as much as $350 million from the audit requirement in Sarbanes-Oxley. Companies with less than $75 million are currently exempt from the requirement.

--Editors: Gregory Mott, Maura Reynolds

To contact the reporter on this story: Phil Mattingly in Washington at

To contact the editor responsible for this story: Lawrence Roberts at

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