The JOBS Act: Reducing the Regulatory Burden on Small Businesses

October 11, 2012

Employers are still struggling to create jobs. One piece of legislation, the Jumpstart Our Business Act (JOBS Act), was recently passed and signed into law. It should improve small business access to start-up capital by reducing the burden of some federal regulations, says Brian Bodine, a graduate student fellow with the National Center for Policy Analysis.

The JOBS Act relieves qualifying start-up firms of a number of compliance costs.

  • For example, section 404(b) of the Sarbanes-Oxley Act requires an auditor to attest to and report on a company management's assessment of its internal controls.
  • The JOBS Act exempts a company with up to $1 billion in revenues from 404(b) for the first five years after it makes an initial public offering of stock.
  • This reduces the burden on small start-ups andeases the path to starting new enterprises.

Small businesses are the lifeblood of the U.S. economy. According to the U.S. Small Business Administration:

  • There were about 6 million small- and medium-size companies with fewer than 500 employees in 2008.
  • These firms employed about 60 million people; another 21 million people were self-employed.
  • Not counting the self-employed, firms with fewer than 20 employees accounted for about 18 percent of total private-sector employment.

Small businesses must cope with a variety of regulations and hurdles.

  • Start-up costs average about $30,000, according to the Kauffman Foundation.
  • Barriers to start-ups can include payroll taxes, minimum wage and employment protection laws, and securities regulations.
  • In 2008, regulatory costs per employee for small firms with fewer than 20 employees were 36 percent greater per employee than firms with more than 500 employees.
  • The regulatory cost for small firms was 42 percent greater than for medium-size firms with 20 to 499 employees.

Regulations can be particularly burdensome to small businesses in comparison to large ones, because the fixed costs associated with regulatory compliance are spread over less revenue and fewer employees.

Source: Brian Bodine, "The JOBS Act: Reducing the Regulatory Burden on Small Businesses," National Center for Policy Analysis, October 11, 2012.

 

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