On February 3, 2014, the Staff of the SEC issued a No-Action Letter (the "Letter") that Carter Ledyard & Milburn LLP lawyers played a key role in securing. The Letter permits an M&A Broker1 who complies with all applicable conditions to receive transaction-based compensation for facilitating mergers, acquisitions, business sales, and business combinations ("M&A Transactions") between sellers and buyers of privately-held companies without registering as a broker with the SEC, regardless of the size of the transaction.

What Are the Limitations of the Letter on Transactions?

The Letter is limited to M&A Transactions involving a "privately-held company," which is one that does not have any class of securities registered, or required to be registered, with the SEC under Section 12 of the Securities Exchange Act of 1934, or with respect to which the company files, or is required to file, periodic information, documents, or reports under Section 15(d) of the Exchange Act. This company must also be an operating company that is a going concern and not a "shell" company, as defined in the Letter.

The M&A Transactions covered by the Letter must:

  • Not involve the public offering of securities.
  • Not involve the transfer of interests to a passive buyer or group of passive buyers. Rather, the buyer, or group of buyers, must, upon completion of the M&A Transaction, control and actively operate the company or the business conducted with the assets of the acquired company.2
  • Comply with an applicable exemption from registration under the Securities Act of 1933, as amended (the "Securities Act").
  • Not involve a buyer that would cease to be a shell company upon the conclusion of the transaction, other than a shell company formed to change the corporate domicile or complete the transaction.

What Does the Letter Permit and Prohibit the M&A Broker from doing?

An M&A Broker CAN:

  • Receive transaction-based compensation.
  • Participate in the transaction, including in negotiations.
  • Represent either or both parties, subject to written disclosure and consent.
  • Advertise the company for sale, subject to a limitation.
  • Provide assistance in obtaining financing from an unaffiliated third party subject to applicable regulations and written disclosure.
  • Provide valuation of any securities being sold.
  • Advise the parties to issue securities or otherwise effect the transfer of the business by means of securities.

An M&A Broker CANNOT:

  • Bind a party to the transaction.
  • Have custody, control, or possession of or otherwise handle funds or securities issued or exchanged in connection with an M&A Transaction or other securities transaction for the account of others.
  • Provide financing for the transaction, directly or indirectly (although, as noted above, the M&A Broker can arrange financing).
  • Have been suspended from association with a broker-dealer or barred from association with a broker-dealer by the SEC, any state or other U.S. jurisdiction, or any self-regulatory organization.

What should an M&A Broker do if it is registered with the SEC?

We recommend any broker considering withdrawal from SEC registration give us a call to discuss all aspects of this possibility. For example, the Letter does not include preemption or relief from state registration. Also, the M&A Broker may desire to conduct its M&A Broker activities through an unregulated parent or affiliated company. However, other activities, such as capital raising, which are not covered by the Letter will still need to be transacted in an entity subject to SEC registration.


1. M&A Broker is defined as a person engaged in the business of effecting securities transactions solely in connection with the transfer of ownership and control of a privately-held company (as defined above) through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the company, to a buyer that will actively operate the company or the business conducted with the assets of the business.

2. Control is defined in the Letter as the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract or otherwise, and will be presumed to exist if the buyer(s), upon completion of the transaction, has the right to vote, sell, or direct the sale of at least 25 percent of a class of voting securities or, 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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.