HR 686, The Small Business Mergers, Acquisitions, Sales & Brokerage Simplification Act, was introduced in the U.S. House of Representatives on Feb. 3, 2015. This bill is identical to HR 2274, which was passed unanimously in the U.S. House of Representatives in 2014, but was never acted upon in the U.S. Senate.
HR 686 would exempt an “M&A broker” from registration under the Securities Exchange Act of 1934 if the M&A broker is engaged in the business of effecting securities transactions solely in connection with the transfer of ownership of an eligible privately held company. The exemption is available to a broker if the broker reasonably believes that upon closing, any person acquiring the securities or assets of the eligible privately held company or business will control and will be active in the management of the eligible privately held company or business. In addition, if the any person is offered securities in exchange for securities or assets of the eligible privately held company, such person will, prior to becoming legally bound to close, receive or have reasonable access to the most recent year-end financial statements of the issuer of such securities.
For purposes of HR 686, the term “eligible privately held company” means a company that does not have any class of securities registered or is required to file periodic information or reports with the U.S. Securities and Exchange Commission, and in the fiscal year ending immediately before the fiscal year in which the M&A broker is initially engaged, the company’s EBITDA is less than $25 million and/or the company’s gross revenues are less than $250 million.
Control is presumed to exist if a person has the right to vote 20% or more of a class of voting securities or the power to sell or direct the sale of 20% or more of a class of voting securities or, in the case of a partnership or limited liability company, has the right to receive upon dissolution, or has contributed, 20% or more of the capital.
The exemption offered by HR 686 is not available to an M&A broker who, in connection with the transfer of ownership of an eligible privately held company, has custody of the funds or securities to be exchanged or engages on behalf of an issuer in a public officer of any class of securities.