New Law Provides Clarity for Brokers on Stock Purchase Deals

Buried in the massive Consolidated Appropriations Act of 2023, which President Biden signed into law on December 29, 2022, are some important changes to the M&A broker industry. The law provides an exemption from securities broker registration for certain M&A brokers under specific circumstances. This exemption, which is established by amending Section 15(b) of the Securities Exchange Act of 1934 to add a new subsection (13), applies to M&A brokers who meet certain conditions.

Under Title V of H.R. 2617, M&A brokers are exempt from securities broker registration if they do not hold themselves out as brokers, do not receive transaction-based compensation, and do not engage in any activities that would require them to register as brokers. In addition, the exemption applies only to M&A brokers who are engaged in the business of effecting transactions in securities as part of the transfer of ownership of a privately held company, and who do not participate in the negotiation of such transactions or receive any compensation that is contingent upon the completion of the transaction.

This exemption is significant because it provides clarity and certainty for M&A brokers who may have previously been uncertain about their obligations under the law. Previously, M&A brokers had to rely on guidance from a Securities and Exchange Commission No-Action Letter, which stated that the SEC would not recommend enforcement action against M&A brokers who did not register as securities brokers, provided that they met certain conditions. While the no-action letter offered some flexibility in determining whether registration was necessary, it was not a formal exemption and did not provide the same level of clarity as Title V of H.R. 2617.

It is important to note that Title V of H.R. 2617 does not allow M&A brokers to simply raise capital for companies. The exemption applies only to M&A brokers who are facilitating the transfer of ownership of privately held companies. The exemption does not cover activities such as raising capital for these companies or participating in the negotiation of the terms of such transactions. M&A brokers who engage in these types of activities may still be required to register as securities brokers.

Overall, Title V of H.R. 2617 brings important changes to the M&A broker industry by providing a clear exemption from securities broker registration for certain M&A brokers. While the exemption applies only to specific circumstances, it offers greater clarity and certainty for M&A brokers, and helps to ensure that the regulatory requirements for these brokers are appropriate and consistent with the nature of their work. Reach out today to learn more.