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“Jumpstart Startups” Act Passes in the House

March 9, 2012 2 comments
Sarbanes-Oxley Stifles Innovation, Job Growth

After the Enron, WorldCom and Tyco scandals Congress passed Sarbanes-Oxley Act in 2002. The “SOX” act intended to protect shareholders from shady corporate disclosures and overstated earnings reports.

What SOX actually did was paralyze innovation and job growth. It imposed a heavy capital burden on growth companies seeking to go public.  Pre-SOX, the average time to IPO was 5 years, post-SOX it is 12 years. For companies that did go public, many defected to a foreign exchange.

For large companies, Sarbanes-Oxley preoccupied C-suites and boards of directors with accounting rules and SEC compliance. As Dr. Chandra Mishra wrote in the Orlando Sun Sentinel, “Sarbanes-Oxley has created a trillion-dollar industry, consisting of lawyers, accountants, compliance officers and programmers, pushing for more bureaucratic procedures and criminal penalties for company management and entrepreneurs, creating fear and confusion, and discouraging risk-taking and corporate growth.”

For small and medium-sized companies seeking to go public, complying with SOX rules adds roughly $4.2 million to their capital requirements.

Even representative Michael Oxley, one of the original sponsors of the bill, said “Frankly, I would have written it differently…Everyone felt like Rome was burning.”

Legislation Passes the House, Senate Yet to Vote

Last year bills in the house and senate addressed this issue and failed. Yesterday H.R. 3606, sponsored by Rep. Stephen Fincher,  passed overwhelmingly in the House of  Representatives.. This bill will cut the costs of going public for small and medium-sized companies buy phasing in SOX requirements over five years.  It also ends SEC rules prohibiting crowdsourcing and advertising to raise capital.

As 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 Senate has not yet voted on its corresponding bill, but passage this legislative session looks good according to Senator Charles Schumer.

Graphic credit: Forbes Magazine

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