U.S. Senate Democrats say they want to put their own mark on House legislation intended to make it easier for closely held companies to raise money and prepare to go public.
Lawmakers in the Republican-controlled House and Democratic-controlled Senate say they see the potential for bipartisan agreement on elements of the plan, which would loosen U.S. Securities and Exchange Commission rules on such companies.
The House plans to begin debate today and may vote tomorrow on the measure, H.R. 3606. Senate Majority Leader Harry Reid of Nevada told reporters yesterday that Senate Democrats will quickly offer their own version “in the same framework of getting something done to help create capital so small business can do a better job.”
“Passage in the Senate appears not to be a question of if, but when,” Senator Charles Schumer of New York, the chamber’s third-ranking Democrat, said yesterday.
President Barack Obama’s administration yesterday urged the House to pass its plan and said it will work with Congress toward a final measure. “Helping startups and small businesses succeed and create jobs is fundamental to having an economy built to last,” the statement said.
Smaller companies have been struggling to raise money amid regulatory and economic pressure. Secondary markets, where private shares of companies are bought and sold, have surged as the 2002 Sarbanes-Oxley Act and the 2010 Dodd-Frank Act made accessing public markets more expensive.
The goal, lawmakers say, is to let companies attract investors while remaining closely held, giving them an opportunity to prepare to eventually go public.
The House Republican plan also would provide newly public companies with less than $1 billion in annual revenue with exemptions and phase-ins for compliance with some SEC rules, including a requirement that an outside auditor attest to the firm’s internal controls.
While saying it would be “naive to believe that it’s going to turn the economy around,” Illinois Senator Dick Durbin said in an interview that the plan “could be helpful.” Durbin said fellow Senate Democratic leaders were consulting with Senator Tim Johnson, a South Dakota Democrat and chairman of the Banking Committee, on possible revisions.
Some Democrats expressed concern that removing or relaxing SEC rules would harm protection for investors.
“You’ve got to have an appropriate balance between the ability to raise capital and protect investors,” Senator Jack Reed of Rhode Island, the second-ranking Democrat on the banking panel, said in an interview. “The market functions best when entrepreneurs can access capital and investors feel confident that their interests are being protected.”
Other Democrats are pushing to expand the proposal. Schumer said he expects the Senate package “to go a little further” than the House plan.
The House Republican proposal would double to 1,000 the number of shareholders a closely held company can have while avoiding SEC registration.
It also would let companies raise as much as $2 million through advertising on Internet platforms such as Twitter or Facebook without triggering SEC registration requirements. The House passed the measure exempting the practice, known as “crowdfunding,” from SEC rules 407-17 in November.
House Majority Whip Kevin McCarthy, a California Republican, is sponsoring a provision in the House measure to remove an SEC ban on private companies soliciting funds from accredited investors unless they have a previous relationship. He said yesterday he feels “stronger” about the plan’s chances of Senate approval.
“The climate is a little different and hopefully, attitudes are a little different,” McCarthy said.