Not every business broker may legally sell your stock

Not always. Since March 29, 2023, Exchange Act Section 15(b)(13) has let an unregistered M&A broker work on the transfer of ownership of an eligible privately held company. The exemption is narrow. It is federal only, it carries conditions your buyer can break, and it matters most when equity, rather than assets, changes hands.

Does a business broker need to be a registered broker-dealer to sell my company?

A business broker must be a registered broker-dealer to effect a securities transaction for you, unless an exemption applies. Selling your corporate stock is a securities transaction. Selling assets generally is not. LLC units sit in between and turn on the facts. The same intermediary can be clean on one structure and exposed on another.

The rule is short. A broker may not use interstate commerce to effect securities transactions unless registered with the SEC. A person who markets your equity, finds the buyer, negotiates price, and takes a fee measured by that price is effecting securities transactions.

Law: 15 U.S.C. 78o(a)(1).

What is the M&A broker exemption in Exchange Act Section 15(b)(13)?

Exchange Act Section 15(b)(13) is a federal statutory exemption from SEC broker-dealer registration for M&A brokers working on the transfer of ownership of an eligible privately held company. Congress enacted it in the Consolidated Appropriations Act, 2023, signed December 29, 2022. It took effect March 29, 2023.

Before that, intermediaries relied on an SEC staff no-action letter issued January 31, 2014, which was never a statute. The staff withdrew it effective March 29, 2023, and the statute replacing it is narrower, because it adds size limits.

The statute defines an M&A broker as a broker effecting securities transactions solely in connection with the transfer of ownership of an eligible privately held company. The broker may work for the seller or the buyer. The deal can be a purchase, sale, exchange, issuance, repurchase, redemption, or business combination involving securities or assets of that company.

Three conditions do most of the work. First, the broker must reasonably believe that on closing the buyer will control the company, or the business run with its assets, and will be active in its management. Second, the broker may never receive, hold, transmit, or take custody of the funds or securities exchanged. Third, anyone offered securities as consideration must receive or have reasonable access, before becoming legally bound, to the issuer’s most recent fiscal year-end financial statements, a balance sheet dated within 120 days of the offer, and information on the issuer’s management and business.

The third condition reaches you directly. Rollover equity in the buyer’s new holding company is ordinary at this size, and taking it makes you a person receiving securities. The buyer opens those books, or the exemption is gone.

Control means the power to direct management or policies. It is presumed if the buyer may vote, or direct the sale of, twenty-five percent or more of a class of voting securities, or, for a partnership or LLC, has contributed or may receive on dissolution twenty-five percent of the capital. Below that line control is not presumed. It has to be shown on the facts.

The consequence is practical. A buyer who intends to sit passive and hire a manager takes your intermediary outside the exemption. That is a fact about the buyer, usually learned late.

Law: 15 U.S.C. 78o(b)(13)(F)(ii) and (F)(iv); Public Law 117-328, Division AA, Title V, Section 501.

Does my company qualify as an eligible privately held company?

An eligible privately held company has no class of securities registered with the SEC and no SEC reporting obligation, and met a size test in the fiscal year before the fiscal year the M&A broker was first engaged. The size test is EBITDA below twenty-five million dollars, or gross revenues below two hundred fifty million dollars.

Read the size test carefully. Four details are easy to miss.

• The tests are alternatives. Either one is enough, so a high-revenue, thin-margin business can qualify on EBITDA alone.
• The measuring year is fixed by when the broker is engaged, not when you close. Growth during a long process does not retroactively disqualify the engagement.
• The numbers come from historical financial accounting records. Adjusted EBITDA built for the marketing package is a selling number, not the statutory one.
• Those figures are the statutory ones as of September 2026, and the statute contemplates periodic inflation adjustment. Confirm the current numbers.

Most owners at this size clear the threshold. Eligibility is rarely where these engagements fail. They fail on the excluded activities and on state law.

Law: 15 U.S.C. 78o(b)(13)(F)(iii).

Why does a stock sale change the answer when an asset sale does not?

A stock sale transfers securities, so an intermediary who negotiates it is effecting a securities transaction and needs registration or an exemption. An asset sale transfers equipment, contracts, and goodwill, and generally is not a securities transaction. The registration question therefore turns on a structure choice usually made for tax and liability reasons, not securities reasons.

Limited liability company units deserve a sentence of their own. They are not automatically securities. Federal courts test them case by case as investment contracts. Do not accept a flat assurance that an LLC deal sits outside the securities laws.

Structures move. A buyer who cannot get a license, a permit, or a key contract assigned will ask to buy the equity instead. That request arrives after the letter of intent, and your engagement letter does not mention it.

You do not choose asset or equity to solve a securities question. You choose it for tax and liability. The securities question then arrives uninvited, attached to whichever structure you picked.

Law: Robinson v. Glynn, 349 F.3d 166 (4th Cir. 2003); Affco Investments 2001, LLC v. Proskauer Rose, LLP, 625 F.3d 185 (5th Cir. 2010).

What is an exempt M&A broker not allowed to do?

Section 15(b)(13) lists excluded activities that defeat the exemption. A broker relying on it may not take custody of the funds or securities exchanged. It may not finance the deal. It may not represent both sides without written disclosure and consent. It may not assemble the buyer group or sign for you.

The statutory list is this.

• Receiving, holding, transmitting, or having custody of the funds or securities to be exchanged by the parties.
• Engaging on behalf of an issuer in a public offering of registered or reporting securities.
• Working for any party on a transaction involving a shell company, other than a business combination related shell company.
• Directly, or indirectly through an affiliate, providing financing for the transaction.
• Assisting with unaffiliated third-party financing without complying with other applicable law and disclosing its compensation in writing.
• Representing both sides without written disclosure to both and written consent from both.
• Facilitating a transaction with a group of buyers formed with the broker’s assistance.
• Engaging in a transfer of ownership to a passive buyer or group of passive buyers.
• Binding a party to the transfer of ownership.

A separate provision disqualifies a broker whose people are barred or suspended from association with a broker or dealer.

Custody catches ordinary practice. Some intermediaries hold the deposit, or take the closing wire and remit your net proceeds. On an equity deal, that habit costs the exemption. Use a bank, title company, or law firm escrow. Signature authority stays with you.

Law: 15 U.S.C. 78o(b)(13)(B) and (C).

Does the federal exemption cover my state’s blue sky law?

Exchange Act Section 15(b)(13) is a federal exemption and does not preempt state securities law. States run their own broker-dealer registration regimes. An intermediary can be exempt at the SEC level and still unregistered where you live, where the buyer sits, or where the target operates. That answer reaches your closing too.

The North American Securities Administrators Association adopted a Model Rule Exempting Certain Merger and Acquisition Brokers from Registration on September 29, 2015, and amended it on May 6, 2024 to achieve uniformity with the federal statute. The 2015 text presumed control at twenty percent, against twenty-five percent federally.

That history is the practical point. States adopted at different times and not all from the same text, so what governs your deal may be the older version, a variant, or nothing. A twenty-two percent buyer is presumed to control under the older text, triggers no federal presumption, and must then show control on the facts. Ask which states your intermediary is registered or notice-filed in.

Separately, ask counsel whether a real estate license is required in your state when real property or a lease transfers with the business. Some states regulate that brokerage under their real estate statutes.

The federal and model-rule positions here, including that structure is usually driven by tax and liability, are stated as of September 2026. Confirm your states before signing.

Law: NASAA Model Rule Exempting Certain Merger and Acquisition Brokers from Registration (adopted September 29, 2015; amended May 6, 2024).

What happens to the success fee if the intermediary was not allowed to do the deal?

Exchange Act Section 29(b) makes a contract made in violation of the Exchange Act void as to the rights of the violator. Courts read that as voidable at the innocent party’s option, not as automatic cancellation. A success-fee letter with an unregistered intermediary on an equity sale is therefore attackable by the party asked to pay. That party is you.

The defense has limits. You must raise it, courts generally require the violation to be inseparable from the making or performance of the contract, and results differ by circuit and on the facts.

The First Circuit applied it in EdgePoint. An intermediary that was not a registered broker-dealer sued a pharmacy business for a fee under a sell-side agreement. The court held the seller’s securities-law defense valid and affirmed judgment for the seller.

Read that from your seat. The seller did not pay, but the fight ran through two district courts and an appeal. Winning is not the plan.

Law: 15 U.S.C. 78cc(b); EdgePoint Capital Holdings, LLC v. Apothecare Pharmacy, LLC, No. 20-1810 (1st Cir. 2021).

Why does an unregistered intermediary become leverage in diligence?

An unregistered intermediary on an equity sale creates a defect the buyer’s counsel can price. Buyers at this size do not run exhaustive diligence, but they do read the engagement letter, because the brokers representation in the purchase agreement has to be true. Once the issue surfaces, it is negotiation.

What the buyer does with it is predictable, and at this size it is blunt. A holdback sized to the fee. A special indemnity. Or a price conversation. The brokers representation asks you to name every intermediary entitled to a fee, which is hard to give cleanly when the fee is contestable.

An unregistered intermediary is not usually a deal-killer. It is a discount. It is found late, by someone paid to find it, at the moment your alternatives are worst.

What should you ask, and put in writing, before you sign the engagement letter?

Before signing with any intermediary, send three questions in writing and keep the answers. Ask whether the firm is a registered broker-dealer. Ask, if it is not, which exemption it relies on, by statute or rule. Ask which states it is registered or notice-filed in. A firm that cannot answer in a paragraph is telling you something.

Then make the letter carry the answers.

• A representation naming the firm’s registration status and, if unregistered, the specific exemption relied on and the states covered.
• A covenant that the intermediary will never receive, hold, transmit, or take custody of deal funds or securities, with escrow held elsewhere.
• A statement that the intermediary has no authority to bind you to a transfer of ownership.
• A structure-conversion clause saying what happens if the deal moves from an asset sale to an equity sale: whether the firm continues, brings in a registered firm, or steps back.
• Written dual-representation disclosure and consent language, so the point is documented, not argued later.
• A financing-assistance clause requiring written disclosure of any compensation the intermediary takes from a lender.
• A tail provision written against the structure actually signed, so a converted deal does not silently trigger a fee the firm could not lawfully earn.

If you are mid-process and the letter says none of this, amend it now, not in the diligence call. An amendment signed while everyone is happy takes five minutes. The same conversation two weeks before closing is a price negotiation.

None of this is a reason to avoid intermediaries. Good ones create competition among buyers, worth more to you than any single legal point here. It is a reason to know, before you sign, which structures your intermediary may lawfully sell.