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[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[S. 3391 Introduced in Senate (IS)]

<DOC>

117th CONGRESS
  1st Session
                                S. 3391

      To amend the Securities Exchange Act of 1934 to establish a 
  registration exemption for merger and acquisition brokers, and for 
                            other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                           December 14, 2021

  Mr. Kennedy introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL

 
      To amend the Securities Exchange Act of 1934 to establish a 
  registration exemption for merger and acquisition brokers, and for 
                            other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Mergers, 
Acquisitions, Sales, and Brokerage Simplification Act of 2021''.

SEC. 2. REGISTRATION EXEMPTION FOR MERGER AND ACQUISITION BROKERS.

    (a) In General.--Section 15(b) of the Securities Exchange Act of 
1934 (15 U.S.C. 78o(b)) is amended by adding at the end the following:
            ``(13) Registration exemption for merger and acquisition 
        brokers.--
                    ``(A) Definitions.--In this paragraph:
                            ``(i) Business combination related shell 
                        company.--The term `business combination 
                        related shell company' means a shell company 
                        that is formed by an entity that is not a shell 
                        company solely for the purpose of--
                                    ``(I) changing the corporate 
                                domicile of that entity solely within 
                                the United States; or
                                    ``(II) completing a business 
                                combination transaction (as defined in 
                                section 230.165(f) of title 17, Code of 
                                Federal Regulations, or any successor 
                                regulation) among not less than 1 
                                entity other than the company itself, 
                                none of which is a shell company.
                            ``(ii) Control.--
                                    ``(I) In general.--The term 
                                `control' means the power, directly or 
                                indirectly, to direct the management or 
                                policies of a company, whether through 
                                ownership of securities, by contract, 
                                or otherwise.
                                    ``(II) Presumption.--For the 
                                purposes of subclause (I), there shall 
                                be a presumption of control if, upon 
                                completion of a transaction, a buyer or 
                                group of buyers--
                                            ``(aa) has the right to 
                                        vote 25 percent or more of a 
                                        class of voting securities or 
                                        the power to sell or direct the 
                                        sale of 25 percent or more of a 
                                        class of voting securities; or
                                            ``(bb) in the case of a 
                                        partnership or limited 
                                        liability company, has the 
                                        right to receive upon 
                                        dissolution, or has 
                                        contributed, 25 percent or more 
                                        of the capital.
                            ``(iii) Eligible privately held company.--
                        The term `eligible privately held company' 
                        means a privately held company that meets both 
                        of the following conditions:
                                    ``(I) The company does not have any 
                                class of securities--
                                            ``(aa) registered, or 
                                        required to be registered, with 
                                        the Commission under section 
                                        12; or
                                            ``(bb) with respect to 
                                        which the company files, or is 
                                        required to file, periodic 
                                        information, documents, and 
                                        reports under subsection (d).
                                    ``(II)(aa) In the fiscal year 
                                ending immediately before the fiscal 
                                year in which the services of an M&A 
                                broker are initially engaged with 
                                respect to a securities transaction, 
                                the company meets either of the 
                                following conditions (determined in 
                                accordance with the historical 
                                financial accounting records of the 
                                company):
                                            ``(AA) The earnings of the 
                                        company before interest, taxes, 
                                        depreciation, and amortization 
                                        are less than $25,000,000.
                                            ``(BB) The gross revenues 
                                        of the company are less than 
                                        $250,000,000.
                                    ``(bb) For purposes of this 
                                subclause, the Commission may, by rule, 
                                modify the dollar figures in subitem 
                                (AA) or (BB) of item (aa) if the 
                                Commission determines that such a 
                                modification is necessary or 
                                appropriate in the public interest or 
                                for the protection of investors.
                            ``(iv) M&A broker.--The term `M&A broker' 
                        means a 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, regardless of whether 
                        the broker acts on behalf of a seller or buyer, 
                        through the purchase, sale, exchange, issuance, 
                        repurchase, or redemption of, or a business 
                        combination involving, securities or assets of 
                        the eligible privately held company, if the 
                        broker reasonably believes that--
                                    ``(I) upon consummation of the 
                                transaction, any person acquiring 
                                securities or assets of the eligible 
                                privately held company, acting alone or 
                                in concert--
                                            ``(aa) will control the 
                                        eligible privately held company 
                                        or the business conducted with 
                                        the assets of the eligible 
                                        privately held company; and
                                            ``(bb) directly or 
                                        indirectly, will be active in 
                                        the management of the eligible 
                                        privately held company or the 
                                        business conducted with the 
                                        assets of the eligible 
                                        privately held company, 
                                        including without limitation, 
                                        by--

                                                    ``(AA) electing 
                                                executive officers;

                                                    ``(BB) approving 
                                                the annual budget;

                                                    ``(CC) serving as 
                                                an executive or other 
                                                executive manager; or

                                                    ``(DD) carrying out 
                                                such other activities 
                                                as the Commission may, 
                                                by rule, determine to 
                                                be in the public 
                                                interest; and

                                    ``(II) if any person is offered 
                                securities in exchange for securities 
                                or assets of the eligible privately 
                                held company, that person will, before 
                                becoming legally bound to consummate 
                                the transaction, receive or have 
                                reasonable access to--
                                            ``(aa) the most recent 
                                        fiscal year-end financial 
                                        statements of the issuer of the 
                                        securities, as customarily 
                                        prepared by the management of 
                                        the issuer in the normal course 
                                        of operations; and
                                            ``(bb) if the financial 
                                        statements of the issuer are 
                                        audited, reviewed, or 
                                        compiled--

                                                    ``(AA) any related 
                                                statement by the 
                                                independent accountant;

                                                    ``(BB) a balance 
                                                sheet dated not more 
                                                than 120 days before 
                                                the date of the offer; 
                                                and

                                                    ``(CC) information 
                                                pertaining to the 
                                                management, business, 
                                                results of operations 
                                                for the period covered 
                                                by the foregoing 
                                                financial statements 
                                                and material loss 
                                                contingencies of the 
                                                issuer.

                            ``(v) Shell company.--The term `shell 
                        company' means a company that, as of the date 
                        of a transaction with an eligible privately 
                        held company--
                                    ``(I) has no or nominal operations; 
                                and
                                    ``(II) has--
                                            ``(aa) no or nominal 
                                        assets;
                                            ``(bb) assets consisting 
                                        solely of cash and cash 
                                        equivalents; or
                                            ``(cc) assets consisting of 
                                        any amount of cash and cash 
                                        equivalents and nominal other 
                                        assets.
                    ``(B) Exemption.--Except as provided in 
                subparagraph (C), an M&A broker shall be exempt from 
                registration under this section.
                    ``(C) Excluded activities.--An M&A broker is not 
                exempt from registration under this paragraph if the 
                M&A broker does any of the following:
                            ``(i) Directly or indirectly, in connection 
                        with the transfer of ownership of an eligible 
                        privately held company, receives, holds, 
                        transmits, or has custody of the funds or 
                        securities to be exchanged by the parties to 
                        the transaction.
                            ``(ii) Engages on behalf of an issuer in a 
                        public offering of any class of securities--
                                    ``(I) that is registered, or is 
                                required to be registered, with the 
                                Commission under section 12; or
                                    ``(II) with respect to which the 
                                issuer files, or is required to file, 
                                period information, documents, and 
                                reports under subsection (d).
                            ``(iii) Engages on behalf of any party in a 
                        transaction involving a shell company, other 
                        than a business combination related shell 
                        company.
                            ``(iv) Directly, or indirectly through any 
                        of its affiliates, provides financing relating 
                        to the transfer of ownership of an eligible 
                        privately held company.
                            ``(v) Assists any party to obtain financing 
                        from an unaffiliated third party without--
                                    ``(I) complying with all other 
                                applicable laws in connection with such 
                                assistance, including, if applicable, 
                                part 220 of title 12, Code of Federal 
                                Regulations, or any successor 
                                regulations; and
                                    ``(II) disclosing any compensation 
                                in writing to the party.
                            ``(vi) Represents both the buyer and the 
                        seller in the same transaction without--
                                    ``(I) providing clear written 
                                disclosure with respect to the parties 
                                the broker represents; and
                                    ``(II) obtaining written consent 
                                from both parties to the joint 
                                representation.
                            ``(vii) Facilitates a transaction with a 
                        group of buyers formed with the assistance of 
                        the M&A broker to acquire the eligible 
                        privately held company.
                            ``(viii) Engages in a transaction involving 
                        the transfer of ownership of an eligible 
                        privately held company to a passive buyer or 
                        group of passive buyers.
                            ``(ix) Binds a party to a transfer of 
                        ownership of an eligible privately held 
                        company.
                    ``(D) Disqualification.--An M&A broker is not 
                exempt from registration under this paragraph if the 
                M&A broker (and, as applicable, any officer, director, 
                member, manager, partner, or employee of the M&A 
                broker)--
                            ``(i) has been barred from association with 
                        a broker or dealer by the Commission, any 
                        State, or any self-regulatory organization; or
                            ``(ii) is suspended from association with a 
                        broker or dealer.
                    ``(E) Rule of construction.--Nothing in this 
                paragraph may be construed to limit any other authority 
                of the Commission to exempt any person, or any class of 
                persons, from any provision of this title, or from any 
                provision of any rule or regulation thereunder.
                    ``(F) Inflation adjustment.--
                            ``(i) In general.--On the date that is 5 
                        years after the date of enactment of this 
                        paragraph, and every 5 years thereafter, each 
                        dollar amount in subparagraph (A)(iii)(II)(aa) 
                        shall be adjusted by--
                                    ``(I) dividing the annual value of 
                                the Employment Cost Index For Wages and 
                                Salaries, Private Industry Workers (or 
                                any successor index), as published by 
                                the Bureau of Labor Statistics, for the 
                                calendar year preceding the calendar 
                                year in which the adjustment is being 
                                made by the annual value of such index 
                                (or successor) for the calendar year 
                                ending December 31, 2020; and
                                    ``(II) multiplying such dollar 
                                amount by the quotient obtained under 
                                subclause (I).
                            ``(ii) Rounding.--Each dollar amount 
                        determined under clause (i) shall be rounded to 
                        the nearest multiple of $100,000.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
take effect on the date that is 90 days after the date of enactment of 
this Act.
                                 <all>
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