II 115th CONGRESS 2d Session S. 3518 IN THE SENATE OF THE UNITED STATES September 27, 2018 Mr. Peters (for himself and 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 exempt from registration brokers performing services in connection with the transfer of ownership of smaller privately held companies.

1. Short title This Act may be cited as the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2018 . 2. Registration exemption for merger and acquisition brokers 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 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) among 1 or more entities 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 this clause, a person shall be presumed to have control under any of the following circumstances: (aa) The person is a director, general partner, member, or manager of a limited liability company, or a corporate officer of a corporation or limited liability company, and exercises executive responsibility (or has similar status or functions). (bb) The person has— (AA) the right to vote not less than 25 percent of a class of voting securities; or (BB) the power to sell or direct the sale of not less than 25 percent of a class of voting securities. (cc) In the case of a partnership or a limited liability company, the person has the right to receive upon dissolution, or has contributed, not less than 25 percent of the capital. (iii) Eligible privately held company (I) In general The term eligible privately held company means a privately held company that— (aa) does not have any class of securities registered, or required to be registered, with the Commission under section 12 or with respect to which the company files, or is required to file, periodic information, documents, and reports under subsection (d); and (bb) 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, as determined in accordance with the historical financial accounting records of the company— (AA) before interest, taxes, depreciation, and amortization, has earnings in an amount that is less than $25,000,000; or (BB) has gross revenues in an amount that is less than $250,000,000. (II) Adjustment of amounts In addition to the adjustments required under subparagraph (F), the Commission may, by rule, modify the dollar amounts described in subclause (I) 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, that is 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, will control and, directly or indirectly, will be active in the management of— (aa) the eligible privately held company; or (bb) the business conducted with the assets of the eligible privately held company; 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 issuer’s management, business, material loss contingencies, and, for the period covered by those financial statements, results of operations. (v) Shell company The term shell company means a company that, at the time 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) General exemption Except as provided in subparagraphs (C) and (D), an M&A broker shall be exempt from registration under this section. (C) Excluded activities An M&A broker shall not be eligible for an exemption 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 that is registered, or is required to be registered, with the Commission under section 12 or with respect to which the issuer files, or is required to file, periodic 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 affiliate of the M&A broker, provides financing relating to the transfer of ownership of an eligible privately held company. (v) Assists any party in obtaining financing from an unaffiliated third party without— (I) complying with all other applicable laws in connection with that assistance, including, if applicable, part 220 of title 12, Code of Federal 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) (I) Engages in a transaction involving the transfer of ownership of an eligible privately held company to a passive buyer or group of passive buyers. (II) For purposes of subclause (I), a buyer that is actively involved in managing the acquired company described in that subclause may not be construed to be a passive buyer, without regard to whether that buyer is owned by passive beneficial owners. (ix) Binds a party to a transfer of ownership of an eligible privately held company. (D) Disqualifications An M&A broker shall not be eligible for an exemption under this paragraph if the broker is subject to— (i) suspension or revocation of the registration of the broker under paragraph (4); (ii) a statutory disqualification described in section 3(a)(39); (iii) a disqualification under the rules adopted by the Commission under section 926 of the Investor Protection and Securities Reform Act of 2010 ( 15 U.S.C. 77d note); or (iv) a final order described in paragraph (4)(H). (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— (i) this title; or (ii) any rule or regulation issued under this title. (F) Inflation adjustment (i) In general On the date that is 5 years after the date of enactment of the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2018 , and every 5 years thereafter, each dollar amount in subparagraph (A)(iii)(I)(bb) 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, 2012; and (II) multiplying that 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. . 3. Effective date This Act, and any amendment made by this Act, shall take effect on the date that is 90 days after the date of enactment of this Act.