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Nutter Bank Report, Special Edition: Jumpstart Our Business Startups Act Signed into Law

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The Jumpstart Our Business Startups Act (“JOBS Act”), which the President signed into law on April 5, eases various regulatory burdens under the federal securities laws for smaller companies and has important implications for banks and bank holding companies that would prefer not to be so-called “reporting companies.”

1. Higher Threshold to Become a Reporting Company

The JOBS Act increases the “holder of record” threshold at which banks and bank holding companies are required to be “reporting companies,” which are companies that must file 10-Ks, 10-Qs, 8-Ks and proxy statements. Prior to the JOBS Act, a bank or bank holding company that was not listed on a stock exchange was required to become a reporting company if, on the last day of the company’s fiscal year, it had a class of equity security “held of record” by 500 or more persons and total assets of more than $10 million. The JOBS Act raises the holder of record threshold from 500 to 2,000 persons for banks and bank holding companies.

    Nutter Notes: As a result of the JOBS Act’s amendments to the Securities Exchange Act of 1934 (“Exchange Act”), banks and bank holding companies that raise equity capital in one or more private placements involving a larger number of investors—up to 2,000—will not be required to become reporting companies.

2. Lower Threshold to “Go Dark”

The JOBS Act also lowers the holder of record threshold for a bank or bank holding company to stop being a reporting company. Prior to the JOBS Act, a bank or bank holding company generally would not be required to continue to file periodic reports and proxy statements if it had fewer than 300 holders of record. The JOBS Act raises that threshold to 1,200 holders of record.

    Nutter Notes: The amendments to the Exchange Act will also allow any bank or bank holding company that currently is subject to periodic reporting requirements to cease to be a reporting company—known as “going dark”—if its equity securities are held by fewer than 1,200 holders of record. The going dark provisions apply equally to mutual holding companies that have made minority stock offerings.

3. New Capital Formation Strategies

The JOBS Act permits for the first time certain other capital formation strategies, including a simplified process for raising up to $50 million during a 12-month period without registering the offering with the SEC and a practice referred to as “crowdfunding” in which a company in need of $1 million or less may raise small sums of investment capital from a broad pool of investors, including non-accredited investors. For a complete summary of the JOBS Act, please see Nutter’s Client Advisory here.

    Nutter Notes: The changes to facilitate capital formation are most relevant to bank holding companies, because bank securities are exempt from SEC registration. It remains to be seen if the OCC will adopt parallel changes to regulations applicable to national banks and federal savings associations. The JOBS Act directs the SEC to issue final regulations to implement these amendments to the Exchange Act within 1 year.

Nutter Bank Report

Nutter Bank Report is a monthly electronic publication of the Banking and Financial Services Group of the law firm of Nutter McClennen & Fish LLP. Chambers and Partners, the international law firm rating service, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. The Chambers and Partners review says that the “well-known and well-versed” Nutter team “excels” at corporate and regulatory banking advice. “The banking and financial services group at Nutter is staffed by a number of ‘blue-chip caliber partners’ who have formidable reputations in the community banking sector,” according to Chambers and Partners. Visit the U.S. rankings at ChambersandPartners. The Nutter Bank Report is edited by Matthew D. Hanaghan. Assistance in the preparation of this issue was provided by Lisa M. Jentzen. The information in this publication is not legal advice. For further information, contact:

Kenneth F. Ehrlich
Tel: (617) 439-2989

Michael K. Krebs
Tel: (617) 439-2288

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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