Small Company Capital Formation Act Passes US Senate

For businesses to succeed, they need to grow, make money, and create jobs. Helping more of them be successful is now getting attention in Washington DC.

The Small Company Capital Formation Act passed through the U.S. Senate Thursday. The act is part of the larger JOBS Act (Jumpstart Our Business Startups Act). It does several things, notably it changes regulations in place by the Securities and Exchange Commission when it comes to raising money.

Montana Senator Jon Tester says this will allow small businesses to innovate and create jobs.

In Great Falls, the bill could have a direct impact on private businesses like Davidson Companies. Under the current law, a private company has a shareholder limit of 500. For a growing employee-owned firm like Davidson, the company would need to go public without a change to the limit.

It takes a great deal of time and resources to go public on the stock exchange. A company would need an investor’s relation department and would need to send out regular reports to shareholders. Plus, most of the company's financial data would become public.

This bill will set the shareholder limit at 2,000.

Senator Tester says changing regulations opens up opportunities for small businesses. Saying, “In a place where we often get bogged down by politics, this legislation reflects a strong bi-partisan commitment to create jobs by ensuring small businesses have the access to capital they need. With this legislation, the possibilities are endless in Montana for entrepreneurs and innovators.”

"The expanded shareholder part of the bill means that Davidson will be able to continue rewarding our employees while staying independent,” Bill Johnstone, chairman and CEO of Davidson Companies said in a statement.

Another part of the act would allow companies to sell up to 50 million dollars in shares without going through the long process with the Securities and Exchange Commission. Currently the limit is at five million dollars.

While the bill sounds like it would make it easier for small companies to raise money, some critics say this system weakens investor protection and could lead to fraud.

Republican Senator Pat Toomey of Pennsylvania is a co-sponsor of the bill introduced by Tester. Now the bill goes back to the house for approval.