Business Brokers and Merger Acquisition Advisors operate illegally –
protect yourself and your business.
When you sell your company a private company or raise capital
for your company, you need to ensure that you only use a business or M&A
advisor who is properly licensed by state and federal securities agencies to
represent you and your business. Your advisor should be registered in your
state and any other state where he or she does business, as well as registered with
FINRA, through a securities broker-dealer, a member of FINRA/SiPC. Your advisor
needs to have passed a combination of state and federal securities tests,
including Series, 62, 63, 7 and 79.
What are the implications if you hire an unlicensed advisor
to sell your company? If your advisor is operating illegally, then you, your
company and your advisor have all violated securities laws. Most people think
that this is a gray area and not a cause for concern, but that’s not accurate.
It is black and white, it is just that most advisors choose not to comply with
the stringent regulations in the hope that they don’t get caught.
If you hire an intermediary that is unlicensed to sell your
business or raise capital for your business and you plan to pay them a success
fee for doing so, most of the time the sale will include some piece of the
capital structure that is either an exempt security or a non-exempt security.
It is important to note that an exempt security is only exempt from
registration as a security. It does not exempt the issuer or advisor from
securities laws.
There are numerous civil and criminal penalties if you are
prosecuted and in a worst case scenario, it could result in a voidable
transaction whereby the buyer or investor has the right of rescission, even
many years down the line, which effectively grants them a “put” right. If the
acquisition or investment doesn’t perform as they expected, then they have the
legal right to come back and ask for their money back.
Even if you hire an unlicensed advisor to represent an asset
sale, your business still needs to comply with securities laws if the final
deal includes any kind of seller note, seller financing, the sale of membership
interest in an LLC, stock, options, warrants, or any other security, including
many debt issuances.
The simple way to find out if your advisor is licensed is to
look at their website or marketing materials. If you are a licensed investment
banking agent or securities representative, you are required by law to disclose
that fact in any marketing materials, including a website. You would likely
find this disclosure in the document footer, or the bottom of a website – you
look for a notice that states: “member FINRA/SiPC.”
Exemptions: For the most part, if operating within their
normal course of business and if they are paid only on an hourly fee
basis, then accountants, lawyers and financial planners are typically exempt,
so long as they do not receive any success or contingency fee payment.
Matthew Bristow is a Certified Merger and Acquisition Advisor and a federal and state registered investment banking agent.
Matthew co-founded ClearRidge Capital, LLC, an Oklahoma Investment Banking firm.
For further information, visit www.clearridgecapital.com or www.matthewbristowtulsa.com.
All rights reserved. Copyright: ClearRidge Capital, LLC, 2012.
