Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2021

IIB 117TH CONGRESS 2D SESSION H. R. 935 IN THE SENATE OF THE UNITED STATES MAY 12, 2022 Received; read twice and referred to the Committee on Banking, Housing, and Urban Affairs AN ACT To amend the Securities Exchange Act of 1934 to exempt from registration brokers performing services in connec- tion with the transfer of ownership of smaller privately held companies. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS 2 HR 935 RFS SECTION 1. SHORT TITLE. 1 This Act may be cited as the ‘‘Small Business Merg- 2 ers, Acquisitions, Sales, and Brokerage Simplification Act 3 of 2021’’. 4 SEC. 2. REGISTRATION EXEMPTION FOR MERGER AND AC- 5 QUISITION BROKERS. 6 Section 15(b) of the Securities Exchange Act of 1934 7 (15 U.S.C. 78o(b)) is amended by adding at the end the 8 following: 9 ‘‘(13) REGISTRATION EXEMPTION FOR MERGER 10 AND ACQUISITION BROKERS.— 11 ‘‘(A) IN GENERAL.—Except as provided in 12 subparagraph (B), an M&A broker shall be ex- 13 empt from registration under this section. 14 ‘‘(B) EXCLUDED ACTIVITIES.—An M&A 15 broker is not exempt from registration under 16 this paragraph if such broker does any of the 17 following: 18 ‘‘(i) Directly or indirectly, in connec- 19 tion with the transfer of ownership of an 20 eligible privately held company, receives, 21 holds, transmits, or has custody of the 22 funds or securities to be exchanged by the 23 parties to the transaction. 24 ‘‘(ii) Engages on behalf of an issuer in 25 a public offering of any class of securities 26 VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS 3 HR 935 RFS that is registered, or is required to be reg- 1 istered, with the Commission under section 2 12 or with respect to which the issuer files, 3 or is required to file, period information, 4 documents, and reports under subsection 5 (d). 6 ‘‘(iii) Engages on behalf of any party 7 in a transaction involving a shell company, 8 other than a business combination related 9 shell company. 10 ‘‘(iv) Directly, or indirectly through 11 any of its affiliates, provides financing re- 12 lated to the transfer of ownership of an eli- 13 gible privately held company. 14 ‘‘(v) Assists any party to obtain fi- 15 nancing from an unaffiliated third party 16 without— 17 ‘‘(I) complying with all other ap- 18 plicable laws in connection with such 19 assistance, including, if applicable, 20 Regulation T (12 C.F.R. 220 et seq.); 21 and 22 ‘‘(II) disclosing any compensation 23 in writing to the party. 24 VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS 4 HR 935 RFS ‘‘(vi) Represents both the buyer and 1 the seller in the same transaction without 2 providing clear written disclosure as to the 3 parties the broker represents and obtaining 4 written consent from both parties to the 5 joint representation. 6 ‘‘(vii) Facilitates a transaction with a 7 group of buyers formed with the assistance 8 of the M&A broker to acquire the eligible 9 privately held company. 10 ‘‘(viii) Engages in a transaction in- 11 volving the transfer of ownership of an eli- 12 gible privately held company to a passive 13 buyer or group of passive buyers. 14 ‘‘(ix) Binds a party to a transfer of 15 ownership of an eligible privately held com- 16 pany. 17 ‘‘(C) DISQUALIFICATION.—An M&A broker 18 is not exempt from registration under this para- 19 graph if such broker (and if and as applicable, 20 including any officer, director, member, man- 21 ager, partner, or employee of such broker)— 22 ‘‘(i) has been barred from association 23 with a broker or dealer by the Commission, 24 VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS 5 HR 935 RFS any State, or any self-regulatory organiza- 1 tion; or 2 ‘‘(ii) is suspended from association 3 with a broker or dealer. 4 ‘‘(D) RULE OF CONSTRUCTION.—Nothing 5 in this paragraph shall be construed to limit 6 any other authority of the Commission to ex- 7 empt any person, or any class of persons, from 8 any provision of this title, or from any provision 9 of any rule or regulation thereunder. 10 ‘‘(E) DEFINITIONS.—In this paragraph: 11 ‘‘(i) BUSINESS COMBINATION RE- 12 LATED SHELL COMPANY.—The term ‘busi- 13 ness combination related shell company’ 14 means a shell company that is formed by 15 an entity that is not a shell company— 16 ‘‘(I) solely for the purpose of 17 changing the corporate domicile of 18 that entity solely within the United 19 States; or 20 ‘‘(II) solely for the purpose of 21 completing a business combination 22 transaction (as defined under section 23 230.165(f) of title 17, Code of Fed- 24 eral Regulations) among one or more 25 VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS 6 HR 935 RFS entities other than the company itself, 1 none of which is a shell company. 2 ‘‘(ii) CONTROL.—The term ‘control’ 3 means the power, directly or indirectly, to 4 direct the management or policies of a 5 company, whether through ownership of 6 securities, by contract, or otherwise. There 7 is a presumption of control if, upon com- 8 pletion of a transaction, the buyer or group 9 of buyers— 10 ‘‘(I) has the right to vote 25 per- 11 cent or more of a class of voting secu- 12 rities or the power to sell or direct the 13 sale of 25 percent or more of a class 14 of voting securities; or 15 ‘‘(II) in the case of a partnership 16 or limited liability company, has the 17 right to receive upon dissolution, or 18 has contributed, 25 percent or more 19 of the capital. 20 ‘‘(iii) ELIGIBLE PRIVATELY HELD 21 COMPANY.—The term ‘eligible privately 22 held company’ means a privately held com- 23 pany that meets both of the following con- 24 ditions: 25 VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS 7 HR 935 RFS ‘‘(I) The company does not have 1 any class of securities registered, or 2 required to be registered, with the 3 Commission under section 12 or with 4 respect to which the company files, or 5 is required to file, periodic informa- 6 tion, documents, and reports under 7 subsection (d). 8 ‘‘(II) In the fiscal year ending 9 immediately before the fiscal year in 10 which the services of the M&A broker 11 are initially engaged with respect to 12 the securities transaction, the com- 13 pany meets either or both of the fol- 14 lowing conditions (determined in ac- 15 cordance with the historical financial 16 accounting records of the company): 17 ‘‘(aa) The earnings of the 18 company before interest, taxes, 19 depreciation, and amortization 20 are less than $25,000,000. 21 ‘‘(bb) The gross revenues of 22 the company are less than 23 $250,000,000. 24 VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS 8 HR 935 RFS For purposes of this subclause, the 1 Commission may by rule modify the 2 dollar figures if the Commission deter- 3 mines that such a modification is nec- 4 essary or appropriate in the public in- 5 terest or for the protection of inves- 6 tors. 7 ‘‘(iv) M&A BROKER.—The term ‘M&A 8 broker’ means a broker, and any person 9 associated with a broker, engaged in the 10 business of effecting securities transactions 11 solely in connection with the transfer of 12 ownership of an eligible privately held com- 13 pany, regardless of whether the broker acts 14 on behalf of a seller or buyer, through the 15 purchase, sale, exchange, issuance, repur- 16 chase, or redemption of, or a business com- 17 bination involving, securities or assets of 18 the eligible privately held company, if the 19 broker reasonably believes that— 20 ‘‘(I) upon consummation of the 21 transaction, any person acquiring se- 22 curities or assets of the eligible pri- 23 vately held company, acting alone or 24 in concert— 25 VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS 9 HR 935 RFS ‘‘(aa) will control the eligible 1 privately held company or the 2 business conducted with the as- 3 sets of the eligible privately held 4 company; and 5 ‘‘(bb) directly or indirectly, 6 will be active in the management 7 of the eligible privately held com- 8 pany or the business conducted 9 with the assets of the eligible pri- 10 vately held company, including 11 without limitation, for example, 12 by— 13 ‘‘(AA) electing execu- 14 tive officers; 15 ‘‘(BB) approving the 16 annual budget; 17 ‘‘(CC) serving as an ex- 18 ecutive or other executive 19 manager; or 20 ‘‘(DD) carrying out 21 such other activities as the 22 Commission may, by rule, 23 determine to be in the public 24 interest; and 25 VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS 10 HR 935 RFS ‘‘(II) if any person is offered se- 1 curities in exchange for securities or 2 assets of the eligible privately held 3 company, such person will, prior to 4 becoming legally bound to consum- 5 mate the transaction, receive or have 6 reasonable access to the most recent 7 fiscal year-end financial statements of 8 the issuer of the securities as custom- 9 arily prepared by the management of 10 the issuer in the normal course of op- 11 erations and, if the financial state- 12 ments of the issuer are audited, re- 13 viewed, or compiled, any related state- 14 ment by the independent accountant, 15 a balance sheet dated not more than 16 120 days before the date of the offer, 17 and information pertaining to the 18 management, business, results of op- 19 erations for the period covered by the 20 foregoing financial statements, and 21 material loss contingencies of the 22 issuer. 23 ‘‘(v) SHELL COMPANY.—The term 24 ‘shell company’ means a company that at 25 VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS 11 HR 935 RFS the time of a transaction with an eligible 1 privately held company— 2 ‘‘(I) has no or nominal oper- 3 ations; and 4 ‘‘(II) has— 5 ‘‘(aa) no or nominal assets; 6 ‘‘(bb) assets consisting solely 7 of cash and cash equivalents; or 8 ‘‘(cc) assets consisting of 9 any amount of cash and cash 10 equivalents and nominal other as- 11 sets. 12 ‘‘(F) INFLATION ADJUSTMENT.— 13 ‘‘(i) IN GENERAL.—On the date that 14 is 5 years after the date of the enactment 15 of this paragraph, and every 5 years there- 16 after, each dollar amount in subparagraph 17 (E)(iii)(II) shall be adjusted by— 18 ‘‘(I) dividing the annual value of 19 the Employment Cost Index For 20 Wages and Salaries, Private Industry 21 Workers (or any successor index), as 22 published by the Bureau of Labor 23 Statistics, for the calendar year pre- 24 ceding the calendar year in which the 25 VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS 12 HR 935 RFS adjustment is being made by the an- 1 nual value of such index (or suc- 2 cessor) for the calendar year ending 3 December 31, 2020; and 4 ‘‘(II) multiplying such dollar 5 amount by the quotient obtained 6 under subclause (I). 7 ‘‘(ii) ROUNDING.—Each dollar 8 amount determined under clause (i) shall 9 be rounded to the nearest multiple of 10 $100,000.’’. 11 SEC. 3. EFFECTIVE DATE. 12 This Act and any amendment made by this Act shall 13 take effect on the date that is 90 days after the date of 14 the enactment of this Act. 15 Passed the House of Representatives May 11, 2022. Attest: CHERYL L. JOHNSON, Clerk. VerDate Sep 11 2014 21:43 May 12, 2022 Jkt 029200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H935.RFS H935 kjohnson on DSK79L0C42PROD with BILLS