1. Business Brokers in Texas:
Clinton Edgar, Director of Registration, Texas State Securities Board
Business Brokers in Texas:
Registrations and Exemptions

2. Agenda What is a “business broker” to the TSSB?
§115 of the Rules and Regulations of the Texas State Securities Board
Registration and Inspections
Exemptions:
Mergers & Acquisitions Dealer
Securities Offerings
Other Licenses

3. Business Broker Dealer, Not Issuer Transaction Involving Securities
Private Offering
Transaction Exemption

4. Board Rule §115.3(c)(2)(D) Examination Waiver
“officers and employees whose firms restrict their officers' and employees' securities activities to acting as brokers between and among principals for the sale of a majority of the stock or equity securities of a privately held business pursuant to a privately negotiated purchase agreement, where the managerial control of the business will devolve upon the purchaser(s) and where compensation received by the firm will be payable for the brokerage activities only”

5. Restricted Registration

6. §115 of the Board Rules What is required…
Post Registration Certificate – §115.4
Maintain Minimum Records – §115.5
Subject to Inspections – §115.7
Update Information with Securities Commissioner §115.9
System to Supervise Agents – §115.10

7. Application Process §115.2 of the Board Rules
– Getting Started as a Dealer
Application Forms (Form BD & Form U4)
Designated Officer
Corporate Documents
Balance Sheet
Criminal History – §115.6
Industry Disclosures – CRD Record

8. Inspections Required by §115.7 of the Board Rules Talking Points
Review Books & Records
Assess Compliance with Applicable Securities Laws
Talking Points
BE AWARE! Even if No Business
Financial Records - Even Sole Props
Commingling Records – §115.5(f)
Change Your Address

9. M&A Dealer Exemption – §139.27
Effective February 2015
Similar to SEC No Action Letter – February 2014
More “bad actor” disqualifications
Records Requirements
§115.3(c)(2)(D) & §115.1(c) Unchanged

10. M&A Dealer Exemption – §139.27
Dealer and Agent Exemption
Qualifying M&A Transaction
M&A Dealer May:
Advertise, so long as not an offer for sale
Facilitate the transaction with a group of buyers, so long as group formed independently
M&A Dealer May Not:
Bind party to transaction
Directly or indirectly provide financing
Handle funds and securities in connection with transaciton for the account of others

11. M&A Dealer Exemption – §139.27
M&A Dealer Must Disclose:
Clear written disclosure and written consent from both buyer and seller if jointly representing both buyer and seller
Compensation in writing to buyer if assists buyers to obtain financing from unaffiliated third parties

12. M&A Dealer Exemption – §139.27
Disqualifications
Regulation A – Rule 262
Felonies, Fraud, Bars, Suspensions, Expulsions
Required Records – Three Years
Compensation
Communications
Agreements or Contracts with Buyers/Sellers
Must provide records to Securities Commissioner upon written request

13. “Business Broker” v M&A Dealer
§115.3(c)(2)(D)
“officers and employees whose firms restrict their officers' and employees' securities activities to acting as brokers between and among principals for the sale of a majority of the stock or equity securities of a privately held business pursuant to a privately negotiated purchase agreement, where the managerial control of the business will devolve upon the purchaser(s) and where compensation received by the firm will be payable for the brokerage activities only”
§139.27
(c) Qualifying M&A Transactions. To be a Qualifying M&A Transaction, the transaction must meet all the following requirements.
 A Qualifying M&A Transaction is a transfer of ownership and control of a Privately-Held Company to a buyer through the purchase, sale, exchange, issuance, repurchase, or redemption of securities, or a business combination involving securities or assets of the company.
 Upon completion of the transaction, the buyer or group of buyers must actively operate the company or the business conducted with the assets of the company.
No Qualifying M&A Transaction can involve a public offering of securities. Any offering or sale of securities will be conducted in compliance with an applicable exemption from registration under the Texas Securities Act.
 The buyer, or group of buyers, in any Qualifying M&A Transaction must, upon completion of the transaction, control the company. A buyer, or group of buyers collectively, would have the necessary control if it has the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise.

14. Putting it All Together…
M&A Dealer
Exemption from Registration (but Records Requirements)
Strict Requirements
Permitted/Prohibited Activities
“Business Broker” Restriction
No Exams, but Registration Required
Private Company / Private Sale
Comply with Board Rules
No Specific Restrictions

15. FINRA Rules (If FINRA Member)
General Dealer
Series 7 and Series 63 or 66 Exams Required
Comply with Board Rules
No Specific Restrictions
Investment Banking
§115.1(c)(2)(N) and §115.3(b)(3)(G)
Series 79 (and 63 or 66)
NASD Rule 1032(i)
Advising on or facilitating debt or equity securities offerings through a private placement or a public offering
Advising on or facilitating mergers and acquisitions,  tender offers, financial restructurings, asset sales, divestitures or other corporate reorganizations or business combination transactions
FINRA Rules (If FINRA Member)

16. Transaction Exemptions
Section 5 of the Texas Securities Act
§109 and §139 of Board Rules (Pursuant to 5.T)
§Burden of Proof – Section 37 of the Texas Securities Act

17. Questions