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M&A Brokers

M&A Broker Dealer Registration

On December 29, 2022, President Biden signed H.R. 2617, the Consolidated Appropriations Act, 2023 (“Appropriations Act”) into law.  As sometimes happens in these voluminous bills, a nugget affecting our industry is buried.  After about 2,600 pages of text we get to Title V – Small Business Mergers, Acquisitions, Sales and Brokerage Simplification.  This short provision codifies into law the broker-dealer registration requirements for entities effecting securities transactions in connection with the sale of equity control in private operating businesses (“M&A Broker”).  Previously the industry has been relying on a no-action letter issued by the SEC Division of Trading and Markets on January 31, 2014, for liability protection involving these transactions (see HERE).

Background

Section 15(a) of the Securities Exchange Act of 1934 (“Exchange Act”) requires securities brokers to register with the SEC and Section 15(b) prescribes the manner of registration. Section 3(a)(4) of the Exchange Act defines a “broker” as “any person engaged in the business

The Payment Of Finders’ Fees- An Ongoing Discussion

Introduction

As a recurring topic, I discuss exemptions to the broker-dealer registration requirements for entities and individuals that assist companies in fundraising and related services. I have previously discussed the no-action-letter-based exemption for M&A brokers, the exemptions for websites restricted to accredited investors and for crowdfunding portals as part of the JOBS Act and the statutory exemption from the broker-dealer registration requirements found in Securities Exchange Act Rule 3a4-1, including for officers, directors and key employees of an issuer. I have also previously published a blog on the American Bar Association’s recommendations for the codification of an exemption from the broker-dealer registration requirements for private placement finders. I’ve included links to each of these prior articles in the conclusion to this blog.

A related topic with a parallel analysis is the use of finders for investors and investor groups, an activity which has become prevalent in today’s marketplace. In that case the investor group utilizes the services

Florida Broker-Dealer Registration Exemption For M&A Brokers

Following the SEC’s lead, effective July 1, 2016, Florida has passed a statutory exemption from the broker-dealer registration requirements for entities effecting securities transactions in connection with the sale of equity control in private operating businesses (“M&A Broker”). As discussed further below, the new Florida statute, together with the SEC M&A Broker exemption, may have paved the way for Florida residents to act as an M&A broker in reverse or forward merger transactions involving OTCQX-traded public companies without broker-dealer registration.

Florida has historically had stringent broker-dealer registration requirements in connection with the offer and sale of securities. Moreover, Florida does not always mirror the federal registration requirements or exemptions. For example, see my blog HERE detailing some state blue sky concerns when dealing with Florida, including the lack of an issuer exemption from the broker-dealer registration requirements for public offerings.

However, in a move helpful to merger and acquisition (M&A) transactions in the state, Florida has now passed an M&A

The SEC Establishes Key Exemption to the Broker-Dealer Registration Requirements for M&A Brokers

On January 31, 2014, the SEC Division of Trading and Markets issued a no-action letter in favor of entities effecting securities transactions in connection with the sale of equity control of private operating businesses (“M&A Broker”).  The SEC stated that it would not require broker-dealer registration for M&A Brokers arranging for the sale of private businesses, in accordance with the facts and circumstances set forth in the no action letter, as described below.

For many years the SEC has maintained a staunch view that any and all activities that could fall within the broker-dealer registration requirements set forth in Section 15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require registration. See also the SEC Guide to Broker-Dealer Registration (2008) on the SEC website.

In accordance with the SEC Guide to Broker-Dealer Registration, providing any of the following services may require the individual or entity to be registered as a broker-dealer:

  • “finders,” “business brokers,” and
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Laura Anthony Esq

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