The potential legislation, which would enable companies with less than $1 billion in annual revenue to comply with certain SOX regulations after they have had their IPO, has rare bipartisan support in a divided Congress.
Under terms of the bill, S1933, "emerging growth" companies would still need to eventually be fully compliant with Sarbanes-Oxley, but would have more time. Companies with less than $1 billion in revenue in its most recent fiscal year would have five years to comply with Section 404(b) of SOX. In other words, there would not be changes to the compliance requirements themselves, but the bill would ease the way for companies to become compliant.
Mark Heesen, president of the National Venture Capital Association is optimistic the legislation will be passed this year, since it provides job creation. "If you give (companies) a better ability to go public, maybe some will take the public route as opposed to getting acquired," Heesen said. "Or maybe some will go public a little faster than they were anticipating. That will spur job creation."
The bill in the Senate and an identical bill in the House both had hearings last week. The House version sailed through the Financial Services Committee last week by a vote of 54-1 and is awaiting a full House vote. A vote on the "Reopening American Capital Markets to Emerging Growth Companies Act of 2011" is also expected in the Senate Committee on Banking, Housing, and Urban Affairs.
The benefits of the bill for companies are both economic--they can save legal and accounting costs associated with Sarbanes-Oxley--but also logistical to delay the onset of those compliance issues, Heesen says. "They're trying to do so many things simultaneously as they're trying to go public," Heesen said. "This gives them some breathing room to do what they really need to do."
Sarbanes-Oxley, passed in 2002 after the Enron and Worldcom scandals, has long been viewed by many venture capitalists and startups as a major headache due to the costs and regulations involved. Many venture investors have argued that SOX has made it more difficult for companies to go public, and hurt competition of U.S. exchanges seeking new companies compared to other exchanges overseas.
The pending bill would also loosen the restrictions on the "quiet period" for companies that have filed their S-1 documents for an IPO and allow them to talk with potential institutional or accredited investors. Here's the relevant passage.
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"...an emerging growth company or any person authorized to act on behalf of an emerging growth company may engage in oral or written communications with potential investors that are qualified institutional buyers or institutions that are accredited investors..."
