The Small Business Brokerage Act Summary

On June 6, 2013, H.R. 2274, the Small Business Mergers, Acquisitions, Sales and Brokerage Simplification Act of 2013, (“Small Business Brokerage Act”) was introduced to the House of Representatives.  The Bill would amend the Securities and Exchange Act of 1934 (the “Exchange Act“) to provide for a notice-filing registration procedure for Brokers performing services in connection with the transfer of ownership of smaller, privately held companies.

Very small business sale transactions are usually accomplished through the sale of the business’s assets in exchange for cash, which is generally not subject to the securities regulations. However, if there is any sort of “earn-out” or promissory note,  the transaction could be regarded as a sale of securities, and thus subject to the federal and state securities laws.

For small to mid-sized companies ownership is usually transferred by means of a purchase, sale, exchange, recapitalization, repurchase, issuance, merger, consolidation or other business combination involving stock or other securities and the federal and state securities laws apply to the parties, transaction and M& A Brokers. (See SEC Rule 145, Reclassification of Securities, Mergers, Consolidations and Acquisitions of Assets.)

Usually the business owner uses an intermediary, (in addition to an attorney and accountant) to “broker” the transaction. The Exchange Act generally requires this intermediary to be registered and regulated as a “broker-dealer” by the SEC and to be a member of, and regulated by, the Financial Industry Regulatory Authority (FINRA).

It is costly for an individual and/or firm to maintain compliance with these SEC and FINRA requirements and the costs are passed on to the business owner seeking the broker’s expertise. The high costs encourage some business owners to utilize unregistered M&A Brokers for the professional assistance needed with their transactions; violating the rules and regulations.

So to close the gap between the needs of the small business owner and the high costs of broker-dealer registration, a new subsection to Section 15 to the Exchange Act would reduce the regulatory costs incurred by sellers and buyers of small and mid-sized privately held companies for professional business brokerage services. It would enable a simplified of registration through a public-notice filing, available on the SEC’s website and would require appropriate client disclosures.

The simplified public notice-filing system would better assure that proper disclosures are made, costs are kept to a minimum for business owners and help ensure compliance with the regulations.

For more information regarding this Bill:

Author: Jennifer Trowbridge, Stoecklein Law Group, LLP


This entry was posted in Broker-Dealers, Legislation, Mergers & Acquisitions, Securities Act of 1934 and tagged , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s