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M&A Brokers Exempt from SEC Registration


Crowell & Moring lawyers were instrumental in the issuance by the Staff of the SEC of a No-Action Letter (the "Six Lawyers Letter") that allows intermediary business brokers (M&A Brokers) to receive transaction-based compensation for assisting in effecting sales of businesses (M&A Transactions) without registering as brokers with the SEC. The Six Lawyers Letter expands limited relief previously granted to business brokers in several significant ways. Not only does it allow an M&A Broker a far greater level of participation, but it is also not dependent on the size of the seller's company. Partners Linda Lerner and Eden L. Rohrer and associate Stacy E. Nathanson were three of the six lawyers who submitted the No-Action request.

What Transactions Are Covered?

The exemption is limited to sales of businesses: 

  • That do not have any class of securities registered, or required to be registered, with the SEC under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and do not file, or are not required to file, periodic information, documents, or reports under Section 15(d) of the Exchange Act (privately held businesses).
  • That are operating companies that are going concerns and not shell companies (companies with no or nominal operations that have (i) no or nominal assets, or (ii) assets consisting (a) solely of cash or cash equivalents, or (b) of cash or cash equivalents and nominal other assets).

The transaction also:

  • Does not involve a public offering of securities.
  • Involves a sale to a buyer (or a group of buyers not formed by the M&A Broker) who will control the company. The necessary control would exist if the buyer(s) has the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract or otherwise, and will be presumed to exist if the buyer(s), upon completion of the transaction, has the right to vote, sell, or direct the sale of at least 25 percent of a class of voting securities or, in the case of a partnership or limited liability company, has the right to receive upon dissolution or has contributed 25 percent or more of the capital.
  • Involves a buyer or group of buyers who are actively engaged in managing the business at the conclusion of the transaction and are not passive owners.
  • Is conducted in compliance with an applicable exemption from registration under the Securities Act of 1933, as amended (the "Securities Act").
  • Does not involve a buyer that would cease to be a shell company upon the conclusion of the transaction (other than a shell company formed to complete the transaction or change the corporate domicile).

The transaction can be structured as a purchase, sale, exchange, issuance, repurchase or redemption of, or a business combination involving, securities or assets of the company. An M&A Transaction is not limited by the size of the business. Any securities received by the buyer(s) and/or the M&A Broker in connection with the transaction will be restricted securities, as defined in Rule 144(a)(3) under the Securities Act.

What is the M&A Broker Permitted To Do?

  • Receive transaction based compensation.
  • Represent either or both parties, so long as, in a joint representation, that fact is disclosed in writing to all parties and their written consent obtained.
  • Participate in the transaction, including in negotiations.
  • Advertise the company for sale with information such as a description of the business, general location and price range.
  • Provide assistance in obtaining financing from an unaffiliated third party if: (i) all applicable requirements, including, as applicable, Regulation T, are complied with, and (ii) any compensation received by the M&A Broker for that service is disclosed to the client in writing.
  • Advise the parties to issue securities or otherwise effect the transfer of the business by means of securities.
  • Assess the value of any securities being sold.

What is the M&A Broker Prohibited From Doing?

  • Binding a party to the transaction.
  • Having custody, control, or possession of, or otherwise handle, funds or securities issued or exchanged in connection with the transaction or any other securities transaction for the account of others.
  • Providing financing for the transaction, directly or indirectly, through its affiliates.

Who May Not Take Advantage of the Exemption?

The exemptive relief is not available if the M&A Broker or, if it is an entity, any officer, director or employee thereof:

  • Has been barred from association with a broker-dealer by the SEC, any state or other U.S. jurisdiction, or any self-regulatory organization.
  • Or is suspended from association with a broker-dealer.

An M&A Broker wishing to rely on the exemption is not required to register with the SEC or FINRA, however, state registration may be required. State registration is often a much more streamlined process than FINRA membership and registration.

The six lawyers who submitted the request for No-Action relief are also members of an American Bar Association Task Force for Private Placement Brokers. For well over a decade, members of the Task Force have worked with regulators, including the SEC, FINRA, and the states, to seek solutions for issuers related to unregistered "finders."

Please contact for more information.