Previously, business brokers were required to be registered with the SEC if they were in the business of effecting transactions in securities, such as the sale of stock. However, there is no SEC registration requirement to serve as a broker in the sale of assets. So under the prior law, an unregistered business broker could earn a commission on the sale of 100% of a business’s assets, but could not earn a commission for the sale of 100% of the same business’s stock. Many felt that different treatment for stock deals and assets deals made little sense. The old rules often required buyers and sellers to structure transactions as a sale of assets, even in cases when a sale of stock would make more sense for the buyer and seller from the standpoint of tax, accounting, regulatory or other considerations.
On February 4, 2014, the SEC came to the relief of unregistered business brokers and their clients by issuing a no-action letter creating the m&a broker exemption from SEC broker-dealer registration requirements. A copy of the no-action letter is available here. The m&a broker exemption permits unregistered business brokers to be involved in transactions involving the sale of control stock of a privately-held company to a buyer who will actively control the business. The transaction may be structured as a merger, acquisition, business sale or business combination. There is no dollar limit on the size of the private company that may be involved in the transaction. There are other restrictions on use of this exemption set forth in the no-action letter, including that the broker may not bind either party, provide financing for the transaction or handle funds.
Easing the regulatory burden on business brokers should result in brokers bringing more buyers and sellers to each other’s attention, thereby facilitating the closing of more business transactions, which in turn should result in fairer prices and greater liquidity for business owners seeking to sell their company.