Legacy Venture Group: How large of a business can they sell?

Legacy Venture Group’s – How large of a business can they sell?

In December 2022, a major legislative update for mergers and acquisitions (M&A) came into play with the signing of the Consolidated Appropriations Act, 2023. The Act brought a crucial amendment to the Securities Exchange Act of 1934, providing specific M&A brokers with an exemption from SEC registration. This exemption, which took effect in March 2023, now allows brokers who meet certain criteria to operate without registering as broker-dealers with the U.S. Securities and Exchange Commission (SEC). This is great news for small business transactions and brings significant implications for M&A brokers, particularly for Tampa business brokers and the Legacy Venture Group team.

The Big Picture: What Does This Mean for M&A Brokers?

The new exemption law opens doors for M&A brokers like Legacy Venture Group’s Tampa business brokers to facilitate small business transitions without needing to register with the SEC as broker-dealers. This change is intended to streamline transactions, reduce regulatory burdens, and lower transaction costs, which is a major advantage for smaller businesses undergoing ownership changes. However, it’s worth noting that while the exemption reduces certain federal requirements, it does not automatically exempt M&A brokers from state-level registration. Brokers operating in different states will still need to comply with individual state laws, which can vary.

Background: SEC No-Action Relief vs. New Exemption

Before this legislation, certain M&A brokers were already able to operate under a form of relief known as the SEC’s No-Action Letter issued in 2014. This letter allowed M&A brokers to assist with ownership transfers without having to register as broker-dealers, but only for private companies of any size under specific conditions. The new exemption is similar but more restrictive, applying only to “eligible privately held companies,” which are defined as businesses with earnings under $25 million or revenues under $250 million. The new law essentially formalizes the relief offered in the No-Action Letter but limits it to small business transactions.

Key Requirements for Tampa Business Brokers Under the New Exemption

The new law defines an “M&A broker” as someone who facilitates securities transactions in the sale or transfer of a business. Legacy Venture Group’s Tampa business brokers, for example, are able to assist with these transitions more efficiently under the following conditions:

1. Eligible Privately Held Company: The business being sold must meet the revenue or earnings limits mentioned above.
2. Buyer’s Control and Involvement: After the transaction, the buyer must control at least 25% of the business’s voting shares and be actively involved in its management. This could include roles such as approving budgets or serving as an executive manager.
3. Disclosure Requirements: Potential buyers must have access to key information, such as the company’s latest financial statements and any critical business data.

These requirements ensure that the brokered transaction is structured for successful business ownership transfer while meeting both federal and state regulatory standards.

Activities Prohibited Under the New Exemption

While the new exemption provides more freedom for Tampa business brokers to facilitate transactions, certain activities are still restricted. For example:

• Brokers cannot handle client funds or securities directly.
• They cannot represent both buyer and seller without written consent from both parties.
• They are prohibited from financing the transaction or forming groups of passive buyers.
• They must avoid any transaction involving shell companies, except for combinations formed solely for the transaction purpose.

These restrictions are in place to maintain transparency and mitigate conflicts of interest in M&A transactions, ensuring that both parties are fully informed and protected.

What This Means for State-Level Regulations

One of the most significant limitations of the new exemption is that it does not override state-level M&A broker registration requirements. While the SEC’s No-Action Letter allowed some states to adjust their regulations to exempt M&A brokers, this new federal exemption does not automatically make state registration unnecessary. Therefore, Tampa business brokers operating under Legacy Venture Group must stay informed about individual state requirements and ensure they are in compliance with any local laws.

As of recent updates, at least 19 states have adopted variations of the SEC’s No-Action Letter, exempting certain M&A brokers from state registration under specific conditions. However, each state can interpret and apply these regulations differently, which can affect Tampa business brokers and their operations.

Advantages of the New Exemption for Tampa Business Brokers

For Legacy Venture Group and other Tampa business brokers, this exemption comes with several benefits:

1. Reduced Costs and Simplified Transactions: By exempting certain brokers from SEC registration, the new law lowers transaction costs, benefiting brokers and small business owners alike.
2. Streamlined Process for Small Businesses: Businesses with revenues below $250 million or earnings under $25 million will find it easier to work with Tampa business brokers like Legacy Venture Group since compliance hurdles are reduced.
3. Greater Flexibility in Business Brokerage: Tampa business brokers who previously faced limitations under SEC registration requirements can now assist more clients within the small business market while focusing on client needs and the transaction’s success.
4. Clarified Framework for Buyer Involvement: The requirements for active buyer management and control post-transaction protect both parties, ensuring new owners are prepared and actively engaged in their new business.

SEC No-Action Relief and Future Considerations

The SEC’s No-Action Letter from 2014 is still applicable, particularly for transactions involving larger businesses or entities that fall outside the new exemption’s financial limits. Tampa business brokers at Legacy Venture Group, for instance, can rely on this No-Action Relief if they meet its specific conditions when handling larger transactions. The No-Action Letter requires that any securities obtained be “restricted securities” (not freely transferable), and it stipulates active buyer involvement in company operations post-sale.

Despite the benefits, Tampa business brokers must remain diligent in navigating both federal and state-level requirements, ensuring they are compliant with the most relevant standards for each transaction.

Conclusion: A New Era for Tampa Business Brokers and Small Business M&A

The recent federal exemption is a welcome development for Tampa business brokers, particularly those working with Legacy Venture Group, who are dedicated to serving small business owners in the Tampa Bay area. The exemption lowers regulatory hurdles, making it easier for M&A brokers to focus on providing high-quality, client-centered services. However, compliance with both federal and state regulations remains essential, so Tampa business brokers must stay vigilant and knowledgeable about the laws that apply to each transaction.

Legacy Venture Group is well-equipped to guide clients through these changes, using their expertise to help business owners navigate the complex landscape of business sales and acquisitions. With a clear understanding of the new exemption and the continuing importance of state regulations, Legacy Venture Group’s Tampa business brokers are poised to offer streamlined, compliant, and efficient services to small business owners in need of trustworthy guidance.

Whether it’s a small business seeking an easy transition or a more complex transaction that requires full SEC compliance, Tampa business brokers at Legacy Venture Group stand ready to assist, leveraging both their knowledge and the flexibility offered by recent legislative updates.

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