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How eXaCtLy SHouLd your CLieNt’ S Broker Be regiStered?
Securities Section Chairs: Rob Jamieson – Wiand Guerra King & Matthew Schwartz – Cole Scott Kissane
Although the SEC and the Florida legislature have recently clarified the regulatory regime for business brokers in Florida, Florida attorneys and business owners often remain perplexed about the applicable licensing requirements. Fortunately, the governing rules are now, for the first time, neatly housed in just two locations.
In its July 31, 2014“ No Action Letter,” which was amended February 4, the SEC’ s Division of Trading and Markets clarified the historically controversial exemption from broker-dealer registration under Section 15( b) of the Exchange Act. This guidance, commonly referred to as the“ M & A Brokers” letter, lays out a safe harbor for brokers selling a“ control” interest in a privatelyheld company to an“ active” buyer( or group of buyers not
Business brokers can charge up-front fees, retainers, and transaction-based success fees without registering as a broker-dealer at either the federal or state level.
pooled by the M & A broker). Both“ active” and“ control” are well-defined in the letter as part of ten enumerated criteria forming a conjunctive test that an unregistered M & A broker must pass to legally sell equity interests in a business and collect a success fee tied to the value of the transaction without any involvement of the SEC or FINRA.
Shortly after the SEC issued its M & A No Action Letter, the North American Securities Administrators Association issued its Model Rule for states on this matter. Florida adopted the rule, effective July 1, 2016, as section 517.12( 22), Florida Statutes. The new provision largely parallels the SEC’ s guidance but provides relief from registration as a broker or dealer under our state securities laws. The biggest difference between the two is, unlike the SEC’ s guidance, which applies to the sale of any privatelyheld entity, the state law limits the exemption to transactions involving target companies that had less than $ 25 million in EBITDA or less than $ 250 million in gross revenue( with inflationary adjustments) in the fiscal year immediately preceding the fiscal year during which the M & A broker begins to provide its services.
For our business-owning clients in Florida, securities regulations are now clear, if not well-known. Business brokers can charge up-front fees, retainers, and transaction-based success fees without registering as a brokerdealer at either the federal or state
© Can Stock Photo / gina _ sanders
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