NASAA’s Proposal to Exempt M&A Brokers

M&A Broker

Posted by Brenda Hamilton, Securities and Going Public Lawyer

Recently, the North American Securities Administrators Association (“NASAA”) published a notice of request for comment on a proposed uniform State Model Rule (“State Model Rule”) that would exempt merger and acquisition brokers (“M&A Brokers”) from state securities registration if certain conditions were met.  Comments on the State Model Rule were required to be submitted to NASAA by February 16, 2015.

NASAA’s proposed State Model Rule has some similarities to a January 2014, SEC No-Action letter  that addressed M&A Brokers and the M&A Brokers exemption contained in HR 37 passed by the House of Representatives on June 14, 2015 (H.R. 37) and it also includes meaningful differences as well.  

The SEC’s January 2014 No-Action letter outlined specific circumstances where it would not recommend enforced action against a broker for failing to register as a broker-dealer with the SEC.  H.R. 37 exempted M&A Brokers from registration with the SEC.  H.R. 37 contained many of the same requirements as the SEC No-Action letter.

NASAA’s proposed State Model Rule is distinguishable from H.R. 37 and the SEC’s No-Action letter.

What Is an M&A Broker Anyway?

NASAA’s State Model Rule and H.R. 37 define an M&A Broker as “any broker and any person associated with a broker engaged in the business of effecting securities transactions solely in connection with the transfer of ownership of an eligible privately-held company” as long as the broker reasonably believes that the acquiring party will control and be active in the management of the company and that anyone offered securities of the eligible privately-held company has reasonable access to the certain financial information regarding the company before the transaction is consummated.

The SEC is similar to H.R. 37 and the State Model Rule, but differs in a critical way.  The SEC requires that any person acquiring securities or assets control to be active in the management of the company.

H.R. 37 only requires that the M&A Broker have a reasonable belief of control or active management on behalf of the acquirer.

Prohibited Activities

Under NASAA’s State Model Rule, an M&A Broker is prohibited from:

  • Having custody or control of funds or securities subject to the M&A transaction,
  • Engaging in a public offering, and/or
  • Engaging in a transaction involving a shell company.

H.R. 37 would allow M&A Brokers to engage in a broader scope of conduct.  The only conduct prohibited by H.R. 37 is having custody or control of funds or securities subject to the transaction and engaging in a public offering. H.R. 37 does not prohibit an M&A Broker from transactions involving a public shell company.

The SEC No-Action letter is the most restrictive in the type of activity in which an M&A broker can engage:

  • Having custody or control of funds or securities subject to the M&A transaction;
  • Engaging in a public offering;
  • Engaging in a transaction involving a shell company;
  • Have the ability to bind a party to a transaction;
  • Provide financing, directly or indirectly, but if assisting in obtaining financing from unaffiliated third-parties, it must disclose any compensation in writing to the client;
  • Represent both buyers and sellers unless clear written disclosure is given to the parties and written consent is obtained by both parties; and/or
  • Facilitate a transaction with a group of buyers if the group was formed with the assistance of the M&A Broker.

What is a “Privately Held Company” under H.R. 37?

The NASAA’s State Model Rule and H.R 37 define a privately held company as a company that does not have any registered securities and has revenue less than $250 million, earnings before interest, taxes, depreciation, and amortization of less than $25 million, or both.

The SEC’s definition excludes the size limits placed on privately held companies by the State Model Rule and H.R. 37.

Presumption of Control

Under the SEC No-Action Letter Presumption of Control arises if the person:

  • Is a director, general partner, member or manager of an LLC, or officer exercising executive responsibility;
  • Has the right to vote or power to sell 25% or more of class of voting securities; or
  • Has the right to receive upon dissolution, or has contributed, 25% or more of the capital to the partnership or LLC.

H.R. 37 and the Model Rule reduce the percentages of voting shares and receipt of capital from 25% to 20%.


For further information about broker dealer registration and securities law, please or contact Brenda Hamilton, Securities Attorney, 101 Plaza Real South, Suite 201 S, Boca Raton, Florida, 33432, at (561) 416-8956 or by email at[email protected]. This information is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, Rule 144, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings, please contact Hamilton and Associates at (561) 416-8956 or [email protected]. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Going Public Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855