New Law Makes it Easier for Small Businesses to Buy, Sell & Merge

Understanding the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2021

After two decades on the “Campaign for Clarity,” on Friday December 23, 2022 the U.S. House of Representatives concurred with the U.S. Senate and passed H.R. 2617, the Consolidated Appropriation Act, 2023 – funding the federal government for FY2023. The $1.7 billion omnibus spending bill signed into law by President Biden enacts H. R. 935: “Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2021.” 

H.R. 935’s Impact for Small Business M&A 

H.R. 935 makes it easier for small business owners to sell their businesses or merge with others so that their companies can continue expanding while supporting job growth.

Previously, the Securities and Exchange Commission’s (SEC’s) 2014 “no-action letter” (“2014 NAL”) addressed what was a gray area in the regulatory landscape for small business M&A transactions. The new law, which takes effect at the end of March, removes the requirement for M&A advisors to be registered Broker Dealers through the SEC in qualifying private company M&A transactions. Qualifying private company transactions are defined as seller earnings and revenue of less than $25 million or $250 million, respectively. 

For business owners, this means there is more freedom to transition your company via an asset or stock deal while working with an M&A advisor who focuses exclusively in your area of the lower middle market.

Support from the National Small Business M&A Community

With strong bipartisan support as well as support from the North American Securities Administrators Association (NASAA), the law provides broad exemptions and guidance following a decades-long effort to codify regulatory relief addressed by the 2014 NAL and later adopted as a NASAA model rule in 2015.

History and Development of this Historic Effort

Previously, in the 2014 NAL from the SEC there were no size restrictions to private market transactions and regulation for who was required to be a Broker Dealer. The Small Business Mergers, Acquisitions, Sales and Brokerage Simplification Act effectively amends the Securities Exchange Act of 1934 to exempt Broker Dealer registration of M&A advisors performing services in connection with the transfer of ownership of smaller privately held companies. 

Originally enacted by Franklin D. Roosevelt’s administration, the SEA of 1934 granted the SEC broad authority to regulate all aspects of the securities industry. The SEA of 1934 closely followed the SEA of 1933, which was created and passed into law to protect investors in public companies after the disruptive stock market crash of 1929. It is important to note that the new 2023 amended law provides added protections against fraud and other misconduct, i.e. “Bad Actors.” 

This law provides exemptions to M&A advisors and investment bankers involved in transactions with private companies that do not have any class of securities registered with the SEC and are not required to file periodic reports. 

Making it Easier for Small Businesses to Buy, Sell & Merge

The team at SEA has supported this legislation since its inception and continues to advocate for business owners seeking to transition ownership of their businesses. This effort represents a significant win for the M&A community and in SEA’s ability to help small business owners and founders who are ready for the next chapter of their entrepreneurial journeys. 

When it comes to understanding the M&A landscape and prioritizing clients’ needs, the experts at SEA are prepared to help business owners take the right path on their entrepreneurial journeys. To learn more about how SEA can help guide you through the next chapter of your success, schedule a conversation here, or call us anytime (215) 489-8881.