Business Brokers Acting as Broker-dealers and Underwriters

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The United States Supreme Court has held that the sale of a controlling interest in a business affected by the sale of its stock constitutes a securities transaction. Accordingly, the transaction is entitled to the protection of the federal securities laws. This paper addresses broker-dealer registration requirements under the Exchange Act and the applicability of state blue sky laws to business brokers.

The recurring theme under federal and state law to determine if a business broker will be required to register as a broker-dealer or agent is whether he satisfies both the "engaged in business" and "effecting transactions" requirements of a securities broker-dealer or agent. The law which has emerged in this area has resulted primarily from pronouncements by the SEC staff.

The "engaged in business" requirement implies either holding oneself out as available to perform or actually performing repeated securities transactions. Although the definition of broker does not share the "regular business" language with the definition of a dealer, it appears that more than isolated transactions are required before one must register as a securities broker.

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