Among these were the Encouraging Employee Ownership Act (HR 1675), which raises the threshold from $5 million to $10 million under SEC Rule 701 (which gives private companies the opportunity to sell securities to employees under certain compensatory benefit or compensation plans without having to incur the costs of SEC registration). It also directs the SEC to adjust the threshold every five years for inflation. Supporters say the measure will reduce the regulatory burden companies face in disclosing the granting of stock options to employees, a valuable tool in attracting and retaining talent.
Included in the legislation are several SEC-related bills previously approved by the House Financial Services Committee that were rolled into HR 1675, such as a provision allowing brokers of small business mergers and acquisitions to be exempt from SEC registration requirements. HR 1675 also includes language to exempt emerging growth companies and companies with gross annual revenue of less than $250 million from compliance with requirements to submit financial statements to the SEC in Extensible Business Reporting Language (XBRL). The exemption is optional for these companies and they may continue to file reports in XBRL if they choose. The exemption would last for at least five years from date of enactment of the legislation. Also rolled into HR 1675 is a requirement that the SEC review all significant regulations and determine if they should be continued or rescinded as determined by a vote of SEC Commissioners. HR 1675 was approved by the House by a vote of 265-159, and will now be sent to the Senate for approval.
Also approved by the House was the SEC Small Business Advocate Act (HR 3784). This legislation creates an Office of the Advocate for Small Business Capital Formation and establishes a formal Small Business Advisory Committee within the SEC. The Office of the Advocate for Small Business Capital Formation will provide a designated advocate for small businesses who can communicate directly with SEC leadership. It will also serve as a source for new concepts and innovation in the small business marketplace, and improve the regulatory process for small business owners, investors and consumers, according to the bill’s sponsor, Representatives Sean Duffy (R-WI) and John Carney (D-DE). The measure was approved on a voice vote and sent to the Senate.
The House passed the Small Business Capital Formation Enhancement Act (HR 4168). This legislation would require the SEC to respond to recommendations made at the agency’s annual Government-Business Forum on Small Business Capital Formation. Currently, the SEC is not required to follow suggestions made at the forum, but this legislation will require the SEC to report on how they plan to act on the recommendations. The bill, introduced by Representative Bruce Polquin (R-ME), was approved by a vote of 390-1, and will be sent to the Senate.
Lawmakers approved the Fair Investment Opportunity for Professional Experts Act (HR 2187), introduced by Representative David Schweikert (R-AZ), to expand the SEC’s definition of an accredited investor qualified to invest in certain private placements. Currently, an individual accredited investor must earn at least $200,000 annually or have a net worth of at least $1 million, not including a primary residence. The legislation would allow individuals who do not meet these requirements to be accredited by demonstrating they have the education, experience and sophistication to invest in such private placements by passing an exam conducted by the Financial Industry Regulatory Authority (FINRA) based on criteria established by the SEC. The bill passed the House by a vote of 347-8 and will now be forwarded to the Senate.
Legislation also of interest to private companies that received final approval in the House was the Financial Institution Customer Protection Act (HR 766), introduced by Representative Blaine Luetkemeyer (R-MO). This bill prohibits federal agencies such as the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC) and the Federal Reserve from ordering a financial institution to terminate a banking relationship unless the regulator has a material reason for doing so. In addition, the legislation would amend language in the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) that will limit misinterpretation of the law by the Department of Justice and restore the original intent of the law, according to Representative Luetkemeyer. This bill is aimed at ending the controversial Operation Choke Point program which has targeted certain industries, including payday lenders, payment processors, gun dealers and others. The bill will now be sent to the Senate. The Obama Administration has indicated it will veto the measure.
The House conducted a vote to override President Obama’s veto of the Restoring Americans’ Healthcare Freedom Reconciliation Act (HR 3762), legislation to repeal key provisions of the Affordable Care Act (ACA) that was vetoed by the President on January 8. As expected, House Republican leaders were unable to muster the two-thirds majority needed to reverse the President, and the veto was sustained. By some counts, the House has made over 60 unsuccessful attempts to repeal some or all provisions of the ACA since it was enacted in 2010.
To help private companies understand the tax implications of the ACA and to learn strategies for dealing with those implications, FEI’s Private Company Roundtable is holding a webcast on March 1, 2016, sponsored by PwC. To learn more about the webcast and register, please click here.
Brian Cove is FEI's Managing Director, Technical Activities where he leads efforts focused on private company members.