As part of a wide ranging bill passed by Congress and signed by the President in December, a new exemption for "M&A Brokers" has been added to the Exchange Act. Beginning March 30th, the SEC rules now provide an express exemption from registration for M&A Brokers, so long as that they meet the requirements for the exemption.
Previously, businesses and individuals who helped to arrange the sale of a business faced uncertainty as to whether they were required to register as a "Broker" for purposes of the Exchange Act; particularly when the transaction was structured as a sale of equity. Individuals working in this space without registration did so largely in reliance upon a series of SEC no action letters, culminating in a January 2014 no action letter that defined "M&A Brokers."
Going forward, an M&A Broker will now be statutorily defined as "...any person ...engaged in the business of effecting securities transactions solely in connection with the transfer of ownership of an eligible privately held company, regardless of whether the broker acts on behalf of a seller or buyer..." M&A Brokers will be exempted from registration under the Exchange act provided (a) they are not subject to bad actor disqualification and (b) they do not engage in certain prohibited activities.
Subsection (13) provides an exemption from SEC registration for M&A Brokers, provided the broker does not engage in any of the following prohibited activities: (a) possessing funds to be transmitted or exchanged by parties to the transaction; (b) engaging on behalf of an issuer in a public offering of a security that is or should be registered with the SEC; (c) engaging in a transaction involving a shell company; (d) providing direct or indirect financing relating to the transfer of ownership; or (v) assisting any party to obtain financing from any unaffiliated third-party without complying with all applicable laws and disclosure obligations.