Brokers that facilitate the purchase and sale of privately held companies usually seek to be compensated by a percentage of the transaction value if the transaction is consummated. For a transaction structured as a sale of equity securities, payment of transaction-based compensation is usually problematic under federal and state securities law. This is because such activity has traditionally been seen to fall within the definition of a “broker,” requiring burdensome registration as a broker-dealer.
This view may be changing, at least at the federal level.
On January 15, 2014, the U.S. House of Representatives passed H.R. 2274: Small Business Mergers, Acquisitions, Sales, and BrokerageSimplification Act of 2013. The Bill was referred to a Senate Committee, where it remains as of this writing. H.R. 2274 amends Section 15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) to exempt from registration brokers performing services in connection with the transfer of ownership of smaller privately held companies...
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