[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[H.R. 935 Reported in House (RH)]

<DOC>





                                                 Union Calendar No. 233
117th CONGRESS
  2d Session
                                H. R. 935

                          [Report No. 117-313]

      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 HOUSE OF REPRESENTATIVES

                            February 8, 2021

Mr. Huizenga (for himself, Mr. Higgins of New York, Mr. Posey, and Mrs. 
 Carolyn B. Maloney of New York) introduced the following bill; which 
          was referred to the Committee on Financial Services

                              May 10, 2022

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]
    [For text of introduced bill, see copy of bill as introduced on 
                           February 8, 2021]


_______________________________________________________________________

                                 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 2021''.

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) In general.--Except as provided in 
                subparagraph (B), an M&A broker shall be exempt from 
                registration under this section.
                    ``(B) Excluded activities.--An M&A broker is not 
                exempt from registration under this paragraph if such 
                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, 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 related 
                        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, 
                                Regulation T (12 C.F.R. 220 et seq.); 
                                and
                                    ``(II) disclosing any compensation 
                                in writing to the party.
                            ``(vi) Represents both the buyer and the 
                        seller in the same transaction without 
                        providing clear written disclosure as to the 
                        parties the broker represents and 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.
                    ``(C) Disqualification.--An M&A broker is not 
                exempt from registration under this paragraph if such 
                broker (and if and as applicable, including any 
                officer, director, member, manager, partner, or 
                employee of such 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.
                    ``(D) Rule of construction.--Nothing in this 
                paragraph shall 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.
                    ``(E) 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--
                                    ``(I) solely for the purpose of 
                                changing the corporate domicile of that 
                                entity solely within the United States; 
                                or
                                    ``(II) solely for the purpose of 
                                completing a business combination 
                                transaction (as defined under section 
                                230.165(f) of title 17, Code of Federal 
                                Regulations) among one or more entities 
                                other than the company itself, none of 
                                which is a shell company.
                            ``(ii) Control.--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. There is a presumption 
                        of control if, upon completion of a 
                        transaction, the buyer or group of buyers--
                                    ``(I) 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
                                    ``(II) 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 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).
                                    ``(II) In the fiscal year ending 
                                immediately before the fiscal year in 
                                which the services of the M&A broker 
                                are initially engaged with respect to 
                                the securities transaction, the company 
                                meets either or both 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.
                                For purposes of this subclause, the 
                                Commission may by rule modify the 
                                dollar figures 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, 
                                        for example, 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, such person will, prior 
                                to becoming legally bound to consummate 
                                the transaction, receive or have 
                                reasonable access to 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, if the financial 
                                statements of the issuer are audited, 
                                reviewed, or compiled, any related 
                                statement by the independent 
                                accountant, a balance sheet dated not 
                                more than 120 days before the date of 
                                the offer, and 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 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.
                    ``(F) Inflation adjustment.--
                            ``(i) In general.--On the date that is 5 
                        years after the date of the enactment of this 
                        paragraph, and every 5 years thereafter, each 
                        dollar amount in subparagraph (E)(iii)(II) 
                        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.''.

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 the enactment of this Act.
                                                 Union Calendar No. 233

117th CONGRESS

  2d Session

                               H. R. 935

                          [Report No. 117-313]

_______________________________________________________________________

                                 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.

_______________________________________________________________________

                              May 10, 2022

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed