[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 3518 Introduced in Senate (IS)]

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115th CONGRESS
  2d Session
                                S. 3518

      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.


_______________________________________________________________________


                   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.

    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 2018''.

SEC. 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.''.

SEC. 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.
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