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Congressman Stephen Fincher

Representing the 8th District of TENNESSEE

Fincher IPO “On-Ramp” Bill Passes Out of House Committee

Feb 16, 2012
Press Release

Fincher IPO “On-Ramp” Bill Passes Out of House Committee

H.R.3606 will reduce regulations to help emerging growth companies create jobs

WASHINGTON Today, H.R. 3606 Reopening American Capital Markets to Emerging Growth Companies Act of 2011 passed through the full House Committee on Financial Services by a bipartisan vote of 54-1. The legislation would reduce the costs of going public for small and medium-sized companies by easing regulatory requirements. Over the last ten years, the number of companies going public has fallen dramatically, hurting the ability of small companies to grow, innovate, and hire new workers.

The legislation creates a new category of issuers, called “emerging growth companies,” that have annual revenues of less than a $1 billion and following the initial public offering (IPO), less than $700 million in publicly traded shares.  Exemptions for these “on ramp” status companies would end either after five years, or when the company reached $1 billion in revenue or $700 million in public float.

Congressman Fincher said, “Small companies are our nation’s best job creators, but have been the hardest hit by burdensome regulations. On average, 92% of a company’s job growth occurs after an IPO.  It is imperative we reduce regulations to help these small companies create private jobs for Americans.”

The legislation amends Section 404(b) of Sarbanes-Oxley to delay hiring an additional outside auditor to verify the company's internal controls for the five year “on ramp” period.  Section 404 regulations cost companies over $2 million per year, with Section 404(b) accounting for 32.5% of those costs. In addition, this bill would only require Emerging Growth Companies to provide audited financial statements for the two years prior to registration rather than three years, saving the companies millions.

The legislation will also make it easier for potential investors to get access to research and company information in advance of an IPO. This is critical for small and medium-sized companies trying to raise capital that have less visibility in the marketplace. Currently, there are regulations in place that make it difficult for investors to find the detailed research reports they need to make an informed decision about new companies.

H.R. 3606 will now await action on the floor of the U.S. House of Representatives. Senators Toomey and Schumer have introduced similar legislation in the Senate.