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.