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The Jumpstart Our Business Startups Act Takes the Bite Out of Sarbanes-Oxley: Adding Corporate Governance to the Discussion

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ABSTRACT: The Jumpstart Our Business Startups Act (“JOBS Act”), which became law in April 2012, made significant deregulations to the United States’ securities law. One such deregulation essentially eliminated the outsider audit mandated by the Sarbanes–Oxley Act of 2002 (“SOX”). There are strong justifications for and arguments against the JOBS Act. However, one significant interest is missing from both sides of the discussion—corporate governance. Corporate governance is important because it furthers Congress’s goals of job creation and economic growth. Because the outsider-audit requirement improves corporate governance practices, this Note proposes a different approach to the controversial outsider-audit requirement. Instead of exempting most companies from SOX section 404(b)’s outsider-audit provision, Congress should retain section 404(b), provide a limited exception for businesses that are both small and young (i.e., businesses with a market capitalization of less than $75 million and are less than ten years old), and encourage businesses to voluntarily strengthen their corporate governance frameworks. Retaining section 404(b) and implementing a limited exception for small, young businesses will allow the United States to reap the benefits of job creation and economic growth that strong corporate governance furthers and the JOBS Act seeks to obtain.

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