IIB 

115TH CONGRESS 

1ST SESSION H. R. 477 

IN THE SENATE OF THE UNITED STATES 

DECEMBER 11, 2017 

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 connection with the transfer of ownership of smaller privately 

held companies. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 


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1 SECTION 1. SHORT TITLE. 

2 This Act may be cited as the ‘‘Small Business Merg3 ers, Acquisitions, Sales, and Brokerage Simplification Act 

4 of 2017’’. 

5 SEC. 2. REGISTRATION EXEMPTION FOR MERGER AND AC6 QUISITION BROKERS. 

7 Section 15(b) of the Securities Exchange Act of 1934 

8 (15 U.S.C. 78o(b)) is amended by adding at the end the 

9 following: 

10 ‘‘(13) REGISTRATION EXEMPTION FOR MERGER

11 AND ACQUISITION BROKERS.— 

12 ‘‘(A) IN GENERAL.—Except as provided in 

13 subparagraph (B), an M&A broker shall be ex14 empt from registration under this section. 

15 ‘‘(B) EXCLUDED ACTIVITIES.—An M&A 

16 broker is not exempt from registration under 

17 this paragraph if such broker does any of the 

18 following: 

19 ‘‘(i) Directly or indirectly, in connec20 tion with the transfer of ownership of an 

21 eligible privately held company, receives, 

22 holds, transmits, or has custody of the 

23 funds or securities to be exchanged by the 

24 parties to the transaction. 

25 ‘‘(ii) Engages on behalf of an issuer in 

26 a public offering of any class of securities 


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1 that is registered, or is required to be reg2 istered, with the Commission under section 

3 12 or with respect to which the issuer files, 

4 or is required to file, periodic information, 

5 documents, and reports under subsection 

6 (d). 

7 ‘‘(iii) Engages on behalf of any party 

8 in a transaction involving a shell company, 

9 other than a business combination related 

10 shell company. 

11 ‘‘(iv) Directly, or indirectly through 

12 any of its affiliates, provides financing re13 lated to the transfer of ownership of an eli14 gible privately held company. 

15 ‘‘(v) Assists any party to obtain fi16 nancing from an unaffiliated third party 

17 without— 

18 ‘‘(I) complying with all other ap19 plicable laws in connection with such 

20 assistance, including, if applicable, 

21 Regulation T (12 CFR 220 et seq.); 

22 and 

23 ‘‘(II) disclosing any compensation 

24 in writing to the party. 


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1 ‘‘(vi) Represents both the buyer and 

2 the seller in the same transaction without 

3 providing clear written disclosure as to the 

4 parties the broker represents and obtaining 

5 written consent from both parties to the 

6 joint representation. 

7 ‘‘(vii) Facilitates a transaction with a 

8 group of buyers formed with the assistance 

9 of the M&A broker to acquire the eligible 

10 privately held company. 

11 ‘‘(viii) Engages in a transaction in12 volving the transfer of ownership of an eli13 gible privately held company to a passive 

14 buyer or group of passive buyers. For pur15 poses of the preceding sentence, a buyer 

16 that is actively involved in managing the 

17 acquired company is not a passive buyer, 

18 regardless of whether such buyer is itself 

19 owned by passive beneficial owners. 

20 ‘‘(ix) Binds a party to a transfer of 

21 ownership of an eligible privately held com22 pany. 

23 ‘‘(C) DISQUALIFICATIONS.—An M&A 

24 broker is not exempt from registration under 

25 this paragraph if such broker is subject to— 


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1 ‘‘(i) suspension or revocation of reg2 istration under paragraph (4); 

3 ‘‘(ii) a statutory disqualification de4 scribed in section 3(a)(39); 

5 ‘‘(iii) a disqualification under the 

6 rules adopted by the Commission under 

7 section 926 of the Investor Protection and 

8 Securities Reform Act of 2010 (15 U.S.C. 

9 77d note); or 

10 ‘‘(iv) a final order described in para11 graph (4)(H). 

12 ‘‘(D) RULE OF CONSTRUCTION.—Nothing 

13 in this paragraph shall be construed to limit 

14 any other authority of the Commission to ex15 empt any person, or any class of persons, from 

16 any provision of this title, or from any provision 

17 of any rule or regulation thereunder. 

18 ‘‘(E) DEFINITIONS.—In this paragraph: 

19 ‘‘(i) BUSINESS COMBINATION RE20 LATED SHELL COMPANY.—The term ‘busi21 ness combination related shell company’ 

22 means a shell company that is formed by 

23 an entity that is not a shell company— 

24 ‘‘(I) solely for the purpose of 

25 changing the corporate domicile of 


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1 that entity solely within the United 

2 States; or 

3 ‘‘(II) solely for the purpose of 

4 completing a business combination 

5 transaction (as defined under section 

6 230.165(f) of title 17, Code of Fed7 eral Regulations) among one or more 

8 entities other than the company itself, 

9 none of which is a shell company. 

10 ‘‘(ii) CONTROL.—The term ‘control’ 

11 means the power, directly or indirectly, to 

12 direct the management or policies of a 

13 company, whether through ownership of 

14 securities, by contract, or otherwise. There 

15 is a presumption of control for any person 

16 who— 

17 ‘‘(I) is a director, general part18 ner, member or manager of a limited 

19 liability company, or corporate officer 

20 of a corporation or limited liability 

21 company, and exercises executive re22 sponsibility (or has similar status or 

23 functions); 

24 ‘‘(II) has the right to vote 25 

25 percent or more of a class of voting 


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1 securities or the power to sell or direct 

2 the sale of 25 percent or more of a 

3 class of voting securities; or 

4 ‘‘(III) in the case of a partner5 ship or limited liability company, has 

6 the right to receive upon dissolution, 

7 or has contributed, 25 percent or 

8 more of the capital. 

9 ‘‘(iii) ELIGIBLE PRIVATELY HELD

10 COMPANY.—The term ‘eligible privately 

11 held company’ means a privately held com12 pany that meets both of the following con13 ditions: 

14 ‘‘(I) The company does not have 

15 any class of securities registered, or 

16 required to be registered, with the 

17 Commission under section 12 or with 

18 respect to which the company files, or 

19 is required to file, periodic informa20 tion, documents, and reports under 

21 subsection (d). 

22 ‘‘(II) In the fiscal year ending 

23 immediately before the fiscal year in 

24 which the services of the M&A broker 

25 are initially engaged with respect to 


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1 the securities transaction, the com2 pany meets either or both of the fol3 lowing conditions (determined in ac4 cordance with the historical financial 

5 accounting records of the company): 

6 ‘‘(aa) The earnings of the 

7 company before interest, taxes, 

8 depreciation, and amortization 

9 are less than $25,000,000. 

10 ‘‘(bb) The gross revenues of 

11 the company are less than 

12 $250,000,000. 

13 For purposes of this subclause, the 

14 Commission may by rule modify the 

15 dollar figures if the Commission deter16 mines that such a modification is nec17 essary or appropriate in the public in18 terest or for the protection of inves19 tors. 

20 ‘‘(iv) M&A BROKER.—The term ‘M&A 

21 broker’ means a broker, and any person 

22 associated with a broker, engaged in the 

23 business of effecting securities transactions 

24 solely in connection with the transfer of 

25 ownership of an eligible privately held comVerDate Sep 11 2014 22:50 Dec 11, 2017 Jkt 079200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H477.RFS H477

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1 pany, regardless of whether the broker acts 

2 on behalf of a seller or buyer, through the 

3 purchase, sale, exchange, issuance, repur4 chase, or redemption of, or a business com5 bination involving, securities or assets of 

6 the eligible privately held company, if the 

7 broker reasonably believes that— 

8 ‘‘(I) upon consummation of the 

9 transaction, any person acquiring se10 curities or assets of the eligible pri11 vately held company, acting alone or 

12 in concert, will control and, directly or 

13 indirectly, will be active in the man14 agement of the eligible privately held 

15 company or the business conducted 

16 with the assets of the eligible privately 

17 held company; and 

18 ‘‘(II) if any person is offered se19 curities in exchange for securities or 

20 assets of the eligible privately held 

21 company, such person will, prior to 

22 becoming legally bound to consum23 mate the transaction, receive or have 

24 reasonable access to the most recent 

25 fiscal year-end financial statements of 


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1 the issuer of the securities as custom2 arily prepared by the management of 

3 the issuer in the normal course of op4 erations and, if the financial state5 ments of the issuer are audited, re6 viewed, or compiled, any related state7 ment by the independent accountant, 

8 a balance sheet dated not more than 

9 120 days before the date of the offer, 

10 and information pertaining to the 

11 management, business, results of op12 erations for the period covered by the 

13 foregoing financial statements, and 

14 material loss contingencies of the 

15 issuer. 

16 ‘‘(v) SHELL COMPANY.—The term 

17 ‘shell company’ means a company that at 

18 the time of a transaction with an eligible 

19 privately held company— 

20 ‘‘(I) has no or nominal oper21 ations; and 

22 ‘‘(II) has— 

23 ‘‘(aa) no or nominal assets; 

24 ‘‘(bb) assets consisting solely 

25 of cash and cash equivalents; or 


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1 ‘‘(cc) assets consisting of 

2 any amount of cash and cash 

3 equivalents and nominal other as4 sets. 

5 ‘‘(F) INFLATION ADJUSTMENT.— 

6 ‘‘(i) IN GENERAL.—On the date that 

7 is 5 years after the date of the enactment 

8 of the Small Business Mergers, Acquisi9 tions, Sales, and Brokerage Simplification 

10 Act of 2017, and every 5 years thereafter, 

11 each dollar amount in subparagraph 

12 (E)(ii)(II) shall be adjusted by— 

13 ‘‘(I) dividing the annual value of 

14 the Employment Cost Index For 

15 Wages and Salaries, Private Industry 

16 Workers (or any successor index), as 

17 published by the Bureau of Labor 

18 Statistics, for the calendar year pre19 ceding the calendar year in which the 

20 adjustment is being made by the an21 nual value of such index (or suc22 cessor) for the calendar year ending 

23 December 31, 2012; and 


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1 ‘‘(II) multiplying such dollar 

2 amount by the quotient obtained 

3 under subclause (I). 

4 ‘‘(ii) ROUNDING.—Each dollar 

5 amount determined under clause (i) shall 

6 be rounded to the nearest multiple of 

7 $100,000.’’. 

8 SEC. 3. EFFECTIVE DATE. 

9 This Act and any amendment made by this Act shall 

10 take effect on the date that is 90 days after the date of 

11 the enactment of this Act. 

Passed the House of Representatives December 7, 

2017. 

Attest: KAREN L. HAAS, 

Clerk. 


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