A bipartisan group of Senators have unveiled legislation they say would make it easier for small and medium-sized companies to go public and raise capital through public markets. They say their package of reforms would spur job creation.

Senators Charles Schumer, D-New York, and Pat Toomey, R-Pennsylvania, say their bill would reduce the administrative and compliance hurdles that have become an obstacle to companies pursuing initial public offering by phasing in many of the costliest obligations of being a public company while maintaining key investor protections. Senators Mark Warner, D-Virginia, and Mike Crapo, R-Idaho are co-sponsoring the legislation.

“During difficult economic times, it is critical that we give growing innovators the breathing room that they need to access public markets,” says Schumer. “The vast majority of job creation occurs after companies go public so it makes sense to make the IPO process easier for emerging firms. This is a commonsense set of reforms that can bridge the partisan divide and have a real impact on job creation.”

From 2001 to 2010 there were 478 IPOs of venture-backed companies. That compared to 1,975 IPOs of venture-backed companies from 1991 to 2000, according to the National Venture Capital Association. “Because 92 percent of all company job growth occurs after an initial public offering, the dearth of these IPOs is of national economic consequence,” the organization said in a prepared statement to the Senate Committee on Banking Housing and Urban Affairs. “The opportunity to address this problem legislatively is one our country can no longer afford to forsake.”

The Schumer-Toomey bill would establish a new category of issuers, called “emerging growth companies” that have less than $1 billion in annual revenues at the time they register with the U.S. Securities and Exchange Commission and less than $700 million in publicly-traded shares after their IPO.

Under the proposed law, these companies would have up to five years or until they reached the $1 billion in revenue or $700 million in publicly traded shares to reach full regulatory compliance with regulations phased in over that period. An estimated 11 to 13 percent of companies representing 3 percent of total market’s capitalization would qualify for this so-called "on ramp" status if these provisions were in effect today, the senators said.

Among the high-cost compliance issues that these companies would be exempted from is a section of Sarbanes-Oxley that requires public companies to pay an outside auditor to attest to a company’s internal controls and procedures. The legislation was put into place following the Enron debacle. SEC studies have shown that compliance with that legislation costs companies more than $2 million per year. Companies with market capitalization of less than $75 million are already exempt. Under Schumer-Toomey, CEOs and chief financial officers would still be required to personally certify that the internal controls and procedures are adequate, exposing them to personal liability.

The proposals would update restrictions on communications to account for advances in modes of communication and the information available to investors. The bill would allow investors to have access to research reports about emerging growth companies prior to the IPO. It would also permit emerging growth companies to gauge preliminary interest in a potential offering by expanding the range of permissible pre-filing communications to institutional investors, and allow for filing a registration statement with the SEC on a confidential basis.

Additionally, the bill would exempt emerging growth companies from the requirement to hold a stockholder vote on executive compensation arrangements, including golden parachutes. “In this struggling economy, Congress should do everything it can to make it easier for small businesses to grow and create new jobs,” says Toomey. “This legislation will make it easier for firms to go public and in turn, create many more jobs.”