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Cut Back Sarbanes-Oxley Red Tape so Startups Can Go Public, Obama Says

By Cynthia Hsu, Esq. on September 20, 2011 | Last updated on March 21, 2019

Do Sarbanes-Oxley and startups make for terrible bedfellows?

Most corporate and in-house attorneys are familiar with the requirements of the Sarbanes-Oxley Act, which was passed in 2002.

Sarbanes-Oxley regulations came down at a time when Americans were outraged at the massive Enron scandal that cost shareholders and innocent employees millions.

The regulations were created partially to reduce the likelihood that similar financial catastrophes would ever surface again. And, one of the safeguards to prevent similar financial mishaps was Section 404 of the Sarbanes-Oxley Act.

Section 404 of the Act mandates that companies and accounting firms carefully document their internal accounting control systems.

For small startup firms, this accounting requirement can come at a high cost, as accountants need to be utilized to check and assess the internal accounting structure.

Small technology businesses say that the Sarbanes-Oxley regulations are a hindrance when they try to go public and get investors. They've been thinking about asking the administration to ease up on these accounting regulations.

Well, they won't need to call up the White House anymore.

President Obama and his administration recently announced that they would be reviewing regulations that affect small businesses' efforts to attract capital and employees. Among the regulations that will go under review is the Sarbanes-Oxley Act, reports Bloomberg.

What does this mean for general counsels? Don't advise your company to fire their accountants yet, as you'll probably still need them.

But, it could mean that regulations might be eased sometime in the future. The regulations are being reviewed jointly with the Securities and Exchange Commission. It's all a part of President Obama's plan to create more jobs. In the meantime, whether or not a relaxing the regulations in Sarbanes-Oxley means startups will flourish remains to be seen.

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