The U.S. House of Representatives recently passed the “Small Business Mergers, Acquisitions, Sales and Brokerage Simplification Act of 2017,” a bipartisan bill that would exempt certain M&A brokers from the registration requirements of the Securities Exchange Act.
H.R. 477 would amend Section 15(b) of the Act to exempt M&A brokers from the registration requirements in that section. The bill would codify regulatory relief the Securities and Exchange Commission offered in 2014, when the commission said it would permit an M&A broker to engage in the certain activities in connection with the purchase or sale of a privately-held company without the broker having to register as a broker-dealer under Section 15(b). Prior to that, a person who had not registered as a broker-dealer generally could not participate in the sale of the company or negotiate on behalf of the parties involved.
H.R. 477 defines an M&A Broker as someone who is engaged in effecting securities transactions in connection with the transfer of ownership of an eligible privately held company. The broker must reasonably believe that any person acquiring securities or assets of the company will be active in the management of the business.
The exemption provided for in H.R. 477 would not apply to M&A brokers that:
- receive, hold, transmit, or have custody of the funds or securities to be exchanged by the parties to the transaction;
- engage on behalf of an issuer in a public offering of registered securities;
- engage on behalf of any party in a transaction involving a public shell company; or
- are subject to suspension or revocation of registration or to other specified disqualifications.
The bill, which has been moved to the Senate, aligns closely with a model state rule that was adopted by the North American Securities Administrators Association in 2015 and is in the process of being adopted by the individual state legislatures. It has gotten support from groups including the Small Business & Entrepreneurship Council, which said in a recent letter to the bill’s sponsor, Rep. Bill Huizenga (R-MI) that the measure would simplify and reduce regulatory costs associated with the sale and purchase of small, privately held companies.
