I 116TH CONGRESS 1ST SESSION H. R. 609 To amend the Securities Exchange Act of 1934 to exempt from registration brokers performing services in connection with the transfer of ownership of smaller privately held companies. IN THE HOUSE OF REPRESENTATIVES JANUARY 16, 2019 Mr. HUIZENGA (for himself, Mr. POSEY, and Mr. HIGGINS of New York) in- troduced the following bill; which was referred to the Committee on Fi- nancial Services A BILL 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 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Small Business Merg- 4 ers, Acquisitions, Sales, and Brokerage Simplification Act 5 of 2019’’. 6 VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS 2 •HR 609 IH SEC. 2. REGISTRATION EXEMPTION FOR MERGER AND AC- 1 QUISITION BROKERS. 2 Section 15(b) of the Securities Exchange Act of 1934 3 (15 U.S.C. 78o(b)) is amended by adding at the end the 4 following: 5 ‘‘(13) REGISTRATION EXEMPTION FOR MERGER 6 AND ACQUISITION BROKERS.— 7 ‘‘(A) IN GENERAL.—Except as provided in 8 subparagraph (B), an M&A broker shall be ex- 9 empt from registration under this section. 10 ‘‘(B) EXCLUDED ACTIVITIES.—An M&A 11 broker is not exempt from registration under 12 this paragraph if such broker does any of the 13 following: 14 ‘‘(i) Directly or indirectly, in connec- 15 tion with the transfer of ownership of an 16 eligible privately held company, receives, 17 holds, transmits, or has custody of the 18 funds or securities to be exchanged by the 19 parties to the transaction. 20 ‘‘(ii) Engages on behalf of an issuer in 21 a public offering of any class of securities 22 that is registered, or is required to be reg- 23 istered, with the Commission under section 24 12 or with respect to which the issuer files, 25 or is required to file, periodic information, 26 VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS 3 •HR 609 IH documents, and reports under subsection 1 (d). 2 ‘‘(iii) Engages on behalf of any party 3 in a transaction involving a shell company, 4 other than a business combination related 5 shell company. 6 ‘‘(iv) Directly, or indirectly through 7 any of its affiliates, provides financing re- 8 lated to the transfer of ownership of an eli- 9 gible privately held company. 10 ‘‘(v) Assists any party to obtain fi- 11 nancing from an unaffiliated third party 12 without— 13 ‘‘(I) complying with all other ap- 14 plicable laws in connection with such 15 assistance, including, if applicable, 16 Regulation T (12 C.F.R. 220 et seq.); 17 and 18 ‘‘(II) disclosing any compensation 19 in writing to the party. 20 ‘‘(vi) Represents both the buyer and 21 the seller in the same transaction without 22 providing clear written disclosure as to the 23 parties the broker represents and obtaining 24 VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS 4 •HR 609 IH written consent from both parties to the 1 joint representation. 2 ‘‘(vii) Facilitates a transaction with a 3 group of buyers formed with the assistance 4 of the M&A broker to acquire the eligible 5 privately held company. 6 ‘‘(viii) Engages in a transaction in- 7 volving the transfer of ownership of an eli- 8 gible privately held company to a passive 9 buyer or group of passive buyers. For pur- 10 poses of the preceding sentence, a buyer 11 that is actively involved in managing the 12 acquired company is not a passive buyer, 13 regardless of whether such buyer is itself 14 owned by passive beneficial owners. 15 ‘‘(ix) Binds a party to a transfer of 16 ownership of an eligible privately held com- 17 pany. 18 ‘‘(C) DISQUALIFICATIONS.—An M&A 19 broker is not exempt from registration under 20 this paragraph if such broker is subject to— 21 ‘‘(i) suspension or revocation of reg- 22 istration under paragraph (4); 23 ‘‘(ii) a statutory disqualification de- 24 scribed in section 3(a)(39); 25 VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS 5 •HR 609 IH ‘‘(iii) a disqualification under the 1 rules adopted by the Commission under 2 section 926 of the Investor Protection and 3 Securities Reform Act of 2010 (15 U.S.C. 4 77d note); or 5 ‘‘(iv) a final order described in para- 6 graph (4)(H). 7 ‘‘(D) RULE OF CONSTRUCTION.—Nothing 8 in this paragraph shall be construed to limit 9 any other authority of the Commission to ex- 10 empt any person, or any class of persons, from 11 any provision of this title, or from any provision 12 of any rule or regulation thereunder. 13 ‘‘(E) DEFINITIONS.—In this paragraph: 14 ‘‘(i) BUSINESS COMBINATION RE- 15 LATED SHELL COMPANY.—The term ‘busi- 16 ness combination related shell company’ 17 means a shell company that is formed by 18 an entity that is not a shell company— 19 ‘‘(I) solely for the purpose of 20 changing the corporate domicile of 21 that entity solely within the United 22 States; or 23 ‘‘(II) solely for the purpose of 24 completing a business combination 25 VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS 6 •HR 609 IH transaction (as defined under section 1 230.165(f) of title 17, Code of Fed- 2 eral Regulations) among one or more 3 entities other than the company itself, 4 none of which is a shell company. 5 ‘‘(ii) CONTROL.—The term ‘control’ 6 means the power, directly or indirectly, to 7 direct the management or policies of a 8 company, whether through ownership of 9 securities, by contract, or otherwise. There 10 is a presumption of control for any person 11 who— 12 ‘‘(I) is a director, general part- 13 ner, member or manager of a limited 14 liability company, or corporate officer 15 of a corporation or limited liability 16 company, and exercises executive re- 17 sponsibility (or has similar status or 18 functions); 19 ‘‘(II) has the right to vote 25 20 percent or more of a class of voting 21 securities or the power to sell or direct 22 the sale of 25 percent or more of a 23 class of voting securities; or 24 VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS 7 •HR 609 IH ‘‘(III) in the case of a partner- 1 ship or limited liability company, has 2 the right to receive upon dissolution, 3 or has contributed, 25 percent or 4 more of the capital. 5 ‘‘(iii) ELIGIBLE PRIVATELY HELD 6 COMPANY.—The term ‘eligible privately 7 held company’ means a privately held com- 8 pany that meets both of the following con- 9 ditions: 10 ‘‘(I) The company does not have 11 any class of securities registered, or 12 required to be registered, with the 13 Commission under section 12 or with 14 respect to which the company files, or 15 is required to file, periodic informa- 16 tion, documents, and reports under 17 subsection (d). 18 ‘‘(II) In the fiscal year ending 19 immediately before the fiscal year in 20 which the services of the M&A broker 21 are initially engaged with respect to 22 the securities transaction, the com- 23 pany meets either or both of the fol- 24 lowing conditions (determined in ac- 25 VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS 8 •HR 609 IH cordance with the historical financial 1 accounting records of the company): 2 ‘‘(aa) The earnings of the 3 company before interest, taxes, 4 depreciation, and amortization 5 are less than $25,000,000. 6 ‘‘(bb) The gross revenues of 7 the company are less than 8 $250,000,000. 9 For purposes of this subclause, the 10 Commission may by rule modify the 11 dollar figures if the Commission deter- 12 mines that such a modification is nec- 13 essary or appropriate in the public in- 14 terest or for the protection of inves- 15 tors. 16 ‘‘(iv) M&A BROKER.—The term ‘M&A 17 broker’ means a broker, and any person 18 associated with a broker, engaged in the 19 business of effecting securities transactions 20 solely in connection with the transfer of 21 ownership of an eligible privately held com- 22 pany, regardless of whether the broker acts 23 on behalf of a seller or buyer, through the 24 purchase, sale, exchange, issuance, repur- 25 VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS 9 •HR 609 IH chase, or redemption of, or a business com- 1 bination involving, securities or assets of 2 the eligible privately held company, if the 3 broker reasonably believes that— 4 ‘‘(I) upon consummation of the 5 transaction, any person acquiring se- 6 curities or assets of the eligible pri- 7 vately held company, acting alone or 8 in concert, will control and, directly or 9 indirectly, will be active in the man- 10 agement of the eligible privately held 11 company or the business conducted 12 with the assets of the eligible privately 13 held company; and 14 ‘‘(II) if any person is offered se- 15 curities in exchange for securities or 16 assets of the eligible privately held 17 company, such person will, prior to 18 becoming legally bound to consum- 19 mate the transaction, receive or have 20 reasonable access to the most recent 21 fiscal year-end financial statements of 22 the issuer of the securities as custom- 23 arily prepared by the management of 24 the issuer in the normal course of op- 25 VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS 10 •HR 609 IH erations and, if the financial state- 1 ments of the issuer are audited, re- 2 viewed, or compiled, any related state- 3 ment by the independent accountant, 4 a balance sheet dated not more than 5 120 days before the date of the offer, 6 and information pertaining to the 7 management, business, results of op- 8 erations for the period covered by the 9 foregoing financial statements, and 10 material loss contingencies of the 11 issuer. 12 ‘‘(v) SHELL COMPANY.—The term 13 ‘shell company’ means a company that at 14 the time of a transaction with an eligible 15 privately held company— 16 ‘‘(I) has no or nominal oper- 17 ations; and 18 ‘‘(II) has— 19 ‘‘(aa) no or nominal assets; 20 ‘‘(bb) assets consisting solely 21 of cash and cash equivalents; or 22 ‘‘(cc) assets consisting of 23 any amount of cash and cash 24 VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS 11 •HR 609 IH equivalents and nominal other as- 1 sets. 2 ‘‘(F) INFLATION ADJUSTMENT.— 3 ‘‘(i) IN GENERAL.—On the date that 4 is 5 years after the date of the enactment 5 of this paragraph, and every 5 years there- 6 after, each dollar amount in subparagraph 7 (E)(iii)(II) shall be adjusted by— 8 ‘‘(I) dividing the annual value of 9 the Employment Cost Index For 10 Wages and Salaries, Private Industry 11 Workers (or any successor index), as 12 published by the Bureau of Labor 13 Statistics, for the calendar year pre- 14 ceding the calendar year in which the 15 adjustment is being made by the an- 16 nual value of such index (or suc- 17 cessor) for the calendar year ending 18 December 31, 2012; and 19 ‘‘(II) multiplying such dollar 20 amount by the quotient obtained 21 under subclause (I). 22 ‘‘(ii) ROUNDING.—Each dollar 23 amount determined under clause (i) shall 24 VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS 12 •HR 609 IH be rounded to the nearest multiple of 1 $100,000.’’. 2 SEC. 3. EFFECTIVE DATE. 3 This Act and any amendment made by this Act shall 4 take effect on the date that is 90 days after the date of 5 the enactment of this Act. 6 Æ VerDate Sep 11 2014 19:57 Feb 04, 2019 Jkt 089200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6301 E:\BILLS\H609.IH H609 pbinns on DSK79D2C42PROD with BILLS