Request that the Commission conduct rulemaking to codify a ... · OF BUSINESS BROK:ftR.$ October 19, 2009 Ms. Mary Schapiro ... a federal and state exemption from licensing or registration

TABB IlTC~ TEXAS ASSOCIATION OF BUSINESS BROKftR$

October 19 2009

Ms Mary Schapiro Chainnan US Securities and Exchange Commission 100 F Street~ NE

RECEIVED

APR 05 2010 OFFICE OF THE SECRETARY

Washington DC 20549

Re Securities LicensingRegistration Exemption for Main Street Business Brokers

Dear Ms Schapiro

Presently there is debate and confusion as to whether the activities of main street business brokers require a securities license or registration on a state andor federal level to collect a fee for their services Main street

business brokers are those business brokers who market and facilitate the transfers of small businesses from one owner-operator toanother owner-operator or to a qualified investor following the criteria stated in SECs Private LetterRulings described in numbered paragraph 1 below The vast majority of these businesstransfers are asset sales Main street business brokers provide an essential service to the small business community in the transfer of on-going businesses which preserves jobs and the continuity of providing goods and services to consumers

Because of this and because of the support the SEC and the courts have expressed with respect to the matter the TABB Inc dba tbe Texas Association of Business Brokers actively advocates for a codification ofactivities alreadydeemed pennissible by the SEC and many courts that would constitute a fed~ral and state exemption for main street business brokers so that they may legally collect a fee relating to a sale of a business via securities without any sort of state or federal licensingor registration requirements

There is considerable support from the uS Securities and Exchange Commission (the SEC) and the courts which would lend itself to a codification of this statutory exemptionwe propose That support is sUInmed up as follows

1 The SEC has already on two occasions with a consistent voice approved what activities main street business brokers may perfonn without the necessity of registration or licensing Those activities are described in the Private Letter Rulings (PLRs) issued by the SEC to International Business Exchange Corporation on December 12 1986 and some twenty years later to Country Business Inc on November 8 2006

2 The reasoning that lead to the holding iIi Vero Group v ISS Service System~et al providing that a finderbusiness broker does not need a license or registration to collect a brokerage fee recognized the difference between applying the economic reality and the sale of business doctrines to a securities fraud case versus applying those doctrines to afinderlbrokerage case in whichthe sale was from and owner operator to an owner operator rather than an investment of money in a

common enterprise with profits to come solely from the effortsmiddot ofothers

Effective November 2 2009amendments to NASD Rules 1022 and 1032 require certain individuals to pass the new Limited Representative - Investment Banking Qualification Examination (Series 79 Exuri) This Series 79 Exam requirement does not apply to main street business brokers but specifiqlly applies to individuals affiliated with FINRA member finns whose activities are limited to investment banking and principals who supervise such activities However the SECs Division of Trading and Markets (the Division) is presently considering a Federal registrationexerription and simplified system of regulation for merger and acquisitionintennediaries This consideration is based on the Alliance of Merger amp AcquisitionAdvisors (AMampAA) letter to the Division

The most recentProposed Model State Rules of MampA Brokers and Small Business Sales advocated byAMampAA advocates for both the following

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823 Congress AveSte 230 Austin TX787011 p 512479~0425 I ( 5124959031 I tabbmembersorgltabborg

Page 2

(i) a federal and state MampA Broker proposed rules for those who want to be able to provide services beyond those allowed in the IBEC and CBI PLRs such as raising private equitymiddot capital and seeking to put investor groups together to buy businesses andmiddot

(ii) a federal and state exemption from licensing or registration for main street business brokers who deal in small business sale transactions in accordance with the BEe and CBIPLRs

The exemption for main street business brokers who deal in small business saJe transactions is crucial to the profession and the business owners they serve The cost to obtain and comply with federal and state licensing or regulation would be prohibitive for main street business brokers who are selling restaurants dry cleaners and other small businesses which upon an occasion involves selling the stock of the business rather than just its assets All of these businesses fall within the definition of a small business as defined by the US Department of Commerce and the Small Business Administration

Industry studies reflect that there are approximately 130000 business sale transactions per year in the US of which only 4000 transactions involve businesses valued at $1 million or more Less than 15 of these transactions involve the sale of privately held securities Furthermore business brokers handle only about 35 to 40 of these transactions Many of these transactions are handled directly between Buyers and Sellers sometimes with the help of their accountants and attorneys Business brokerage is a very small profession with less than 3500 companies in fpe US calling themselves business br()kersLitigation with business brokers for viohitions ofpublic trust have been few and rarely get to the level of the federal court system The cost to regulate or even Fegister business brokers will far and away exceed any reasonable public benefit Codification ofan exemption for main street business brokers will clarify practices permitted by main street busin~ss brokers and would benefit the public~

In support of our po~ition on this matter enclosed is asummary of the PLRs and judicial rulingsrelating to the issue that has been compiled by the Texas Association of Business Brokers GeneralCOllllsel John C Willems III Mr Willems memo traces the support that the SEC and the courts have given t~ the statutory exemption we propose and summarizes the activities which main street business brokers may engage in order to qualify for this exemption

As a member of the US Securities arid Exchange Commission we hope that you will support the Texas Association of Business Brokers position for a federal andmiddot state exemption to be codified adopting the

parameters of the SECs PLRs to IBEC ~nd CBI relative to state and federal licensing or registration of main street business brokers

RespectfulIy ~Tabb Inc

lJt~ BY~

John M Miller President

Enclosures

CC Kathleen L Casey Elisse B Walter Luis A Aquilar Troy A Paredes

JOHN C WILLEMS III Attorney at Law

10440 N Central Expressway Suite 1400

Dallas Texas 75231 mieet -21+360-1020

Fax-2U-360-1010 Email jwi1lemsdringereom

MEMORANDUM

TO Mike Miller President TARB Inc CC Keith Chapman Immediate Past President TABB Inc~ Dominick Caravella

President Houston Chapter TABB Inc David Sweeten Pre$idertt San Antonio Chapter TABB Inc Clarence Griggs President Austin Chapter TABB Inc Ben Johnson President DFW Chapter TABB Inc Lucy Higgins S~cretary TABB Inc Jeff Jones Treasurer TABB Inc and Eduardo BerdegueVice President TABE Inc

FROMmiddot John C Willems III GeneralCounsel TABB Inc DATE August 11 2009 RE Legal Authorities formiddot Securities Licensing Exemption Relative to Main Street

Business Brokers

EXECUTIVEmiddot SUMMARY

A codification of a federal exemption relative to any sort of licensing or registration of business brokers when handling the sale of a small closely held company is needed for the business brokers who handle those sales (main street business brokers) via a stock or an equity transfer

There is considerable supportfrom the US Securities and Exchange Commission (the SEC) and the courts wIth respect to this proposition That support is sumriled up as follows

1 The SEC has already on two occasionswitha consiStent voi(e approved whatmiddot activities main street business brokers inay performwithouithe necessitY ofmiddot registration ormiddot licensing Those actlvities are describedmiddot in the Private Letter Rulings (PLRs) issued by the SEC to International Business Exchange Corporation on December 12 1986 and some twenty years later to Country Business Inc on November 8 2006

2 The reasoning that lead to the holding in Vero Group v ISS Service System et all providing that a finderlbusiness broker does not need a license or registration to collect a brokerage fee recognized the difference between applying the economic reality and the sale of business doctrines to a finderbrokerage case in which the sale was from aIidowner operator to an owner operator as opposed to

applying these doctrines to either an investment of money in a ccimmonenterprise with profits to come solely from the efforts ofothers or applyingthesedoctrines to a securities fraud case

IVero Group v ISS Service System et al 971 Fed 2d 1178 (1992)

MEMORANDUM PAGE 1

Jgtresently there is debate ~nd eopfusionasmiddottofwhether the aCtivities of mainstreet business brokers require those brokers to have a securities license or registrationon a state and federal level Because of this and because of ~esupp()rttIe $~~ ~d t4~ c0M1s haye ~xpressed with respect tomiddotmiddot ~e matter as e~erep~d a~oye ~~ 1~~~ Associa(ion (~~sin~ssl3i9~ers~ I~~ (TABB) should aCtively advocate fot ~ codificAtion of ~ctiviti~s already 4eemed p~rmissible

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by theSECarid many courts that-~oUld middotcbnstitu~itfederalmiddot~x~mptiOri fOf ma~street busine~$

brokers $~ 4iattlie)inayc911~ct~(fee relatJngjltmiddot~J~le of a b~tne~s via~a ~equriii~smiddotwithout~apYmiddotmiddot sortofsta~e or federal licensing dr registration teqireinents I~

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BACKGROUND

Si~~~ at le~t1946 ~ainstreet husfu~~~ bibkerdwete consider~d byihdcdurtsto heexempt from ~sort seq~ities licens4tgor J~gistraon in~rder tobe ableto collect their fees basedo~ the ~~~Cql1oiillc reality test as espo~~ hythe United States Supreme Court- in the case of8RCmiddot v middotWImiddotHowey Co2~ The t1IeuroonrPtth~middot~Qnomic reality testjs thatwhen lOOofthe stock or a lttoI4panymiddotis tr~ferred theJederal s~curitieslaws ~Qnot apply Thefest-is~ whetl1erllieschetn~middot involve~ ~ irivest~~ilt ()f~OneyilJi ~~cQ~~n- eJltetptis~~Fithprofitsio comesolely frottI tllb effotts of Jth~rs~3 Following th~h9ldjngjncHowey is~Unitede Hol1sing Hounda=doil vF6rrilan~middot and iIlthat c~~eth~middot cDurt simil~lymiddotfeaso~ed middotmiddot~Thetestfor distinguishing atransactien inmiddot securlti~sw1thinthe~in~ng~fthe reWlattgty actsfrom other corniliercialdeaJings is whether the scheine ~nvQlves an investmentof mOu~y4Ia~QnunonmiddoteiiterpriseWith~profits tocome solely

fro~ themiddoteffoirts~middot~~others~ e gt- c gt The Texas Court of Appeals in San Antonio also followed the Howey holding in Star Supply Company v Jones 6 which cites a long line of cases on both the suite aridJeampiralmiddotleve1 WHIcK applied the economic reality test reasorung th~t whe~ the goal pf fPe pur~haser is pot an investment-which relieS on the efforts ofbthers btitls a amp~siie to consunleiiSefncf acquire in its entirety the thing being purchased the secUrities laws do not appli18kSuwly Company v Jonesvv~ dec~d~d iI)984- r

However in 1985 themiddotUnitedmiddotStates SuptemeCourt inLaildreth timberCorrip~y v Landreth said Because the Courts of Appeal are divided over the applicability of the federaf securities

laws When a businessis sold by th~)raIl$(~r ofJ~Q9 it~stock ~e grant~d certiotari-8 In ~ts fmaldetenriiliation fin Landreth ~e S~Rreme ~centlt~ft~a~dlttsinn vy~conclude that the st9ck atmiddot

iss~~h~re fs a ~SesitY-~~tyentitne~~niW~n~qtfii~ J~tsari~th(l ~ t~e ~~e 9pound9usJnes~ doctrjne does hot apply9The court 1I1 Lanqretlir(ampsolJ~d~~ttwnents thaLbear boththe name andtll

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SEC vWJHowey Co328UUgt 293gt6i sctmiddot i100 llcY490L1Ed 1~44 1251 (1949)bull middotgtL 3 Icta~middotrjOl 1- r to gt ~ 4 middotUnit~$HbUsln(f pounriadon Foman ~2 U$~ 837 847 9~ S ~ Ct 2051 08 44L~Ed2ai1621~6~~(1975Ymiddot middotmiddotmiddot ~ c -

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6 Star Supply Company v Jones 665 SW2di94-(1~84)~~~ 7 Start Supra at 196~ Citing SEC~v WJ Howey Co 328 US 293 301 66SCt1100 1104 90 LEd 1244 1251 (1946) and the test being reiterated in United Housing foundation v Forman 421 U S 837 847 95 S Ct2051 2058 44 LElti2d621 629 (1975) BLandrethTimber Company v Landreth 10jSCt 2297 2301 (1985)

Id at 2307

MEMORANDUM PAGE 2

theQSual characteristics of stock seem to uS to be the cl~arest ease for coverage by the plaIn hylguageo-fthedefinition19 lt

Some sta~e courtsthat have followed L~dieth 4~V6 d~ne so ~ecause they aqopt there~~~1Jg of theUnitedStatesSupreme CoUrt in Larldidh -Seeomv bh 172P~3(I499 SQ8-09(Haw 2(J07) Banton v Hackney 557 So2d 80i~ 8~((Ala 19~9)Cohen y Wi1il~ Golclbergamp Co ri~~ 4~3 SIt2d23 (232-33 ~G~ 992)~~~~qo~ h~v~~qn~~l ~i~h~ut e~pliitlyagfee~~ with llie Supreme Courts reasoIllng but becau~~ the language pfthe 193~ap-d 1934 ipts IS

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substantially similar to the wording of the~ particular state securities statute Barnes v Sundennan 453 NW2d 793796 (ND 1990) Carverv Bianford 342 SE2ltf406407(SC 1986)~ These courts apply the s~ock charapterizatiol tes(INm Vudreh

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So~~ sate cpurtsthat h~velIDt followed Landreth havedone so becatise they havetiasoned thaF the4gt st~emiddotJegislattires have intended the lstate sedurities~ sUitties to ~cove-r salesjii the s~cUrit~es ~ar~~t not (Qmmercial transactions When a cioselyheld corporation is sold Seevhite v SgloIilonZ32 lt2d 1389 1391 (NampMCt App 1986) D0nertyv~ K~ (YS2 NEid t63 169~70 (IJl1 ARPi Ct~ 1991) AndersonN Heck 554 -So2d 695 700 (La~et ApP 198~)-TiieseStatb~ cQ~tmle tQ~apply the principJe the Unit~d StatesShpteme Cottrfapplied iIi fomiari~ th~t form sholJ14 bej~jsregatd~dfor suThstanceand the emphiisisShdtiidd oniecon6IilicreaIitY~ People v~ Figuerlt)a ~715 I2d 680 694 n26 (CaLmiddot1986)qu0-ting71S P2d 6~Omiddot694h26(CaCl986) (quotipg Tcherepnm ~ 89 US at33 6)~ Asstlch these statesapply the saleof ))t1siness~~ doctriile so that state securities laws do not ampPply to transactions iil which100of the ~ioCi( ofa closely ~elcl cOryJQratiop is tr~nsferred t C i

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1 Ate the econoinic reality~ andysaleR-f busineS$doctriries~eadornotanq s~ould th~ybe _~ ~gt )

2 norri~ln street business brokers need to be licensed or registetedwith iheSEC ~~or the rarioqs statesin whlphl~hrYQge~at~ Q~ not

DISCUSSION I bull ~ - ~ ) ~ j ~ ~ ~ -~ ~ ~

in dired response t~ the holdings in boh Stat S~pply ~d rf~dJetP andjnoj-d~r~o yen~tco1l1f9rt that a main street business brokerwltl$ no(tequitedtdbe licenseqor register~p Int(matipnaJ

Business Exchange Corporation tIBEC~~)t a Tex~cdfiior~tiqnyenFot(f the SEC with a fact stenario thatdcentscribed not oniy their hU~lr1e~s a~tlYiti~s btifalso the~ activitlesof Utarty main street business brokers both in Texasandthroughool the~oUIiti-y SeeIhiiiglY contrary f9 the holding in Landreth arid in the face oftheract that IBEe Clearly identified themselveshs acting as a broker for a seHer who ultimately so~d their cinpany through the sale of sto~k the SEC

issued the PLR attached as Exhibit A In this PLR the SEC tacitly confinued thattmder the fact pattern laid out IBEe could collect a fee and was not required to b~ regjsteredorlic~flsedto collect its fees in a secUrities sale of a srhaUbusiriessY It4eScribedactlYiti~sthatthe S~C deemed permissible bya main street business broker vitiating any obligation or requirement by that broker to be licensed or registered by the SEC

10 rd at 2305 11 The tacit confirmation is inferred by reason of the SEC lsserting that

under the facts presented no enforcement action would be rEicommended See the SEC IBEC PLR page 3 ~

MEMORANDUM middotPAGE 3

For years~ prokers in Texas and around the countrY have used the fact scenarios described in the IBECPLR in conducting their business and believed that in doing so they were al~o not required to be licensed pr registered by th(j SECI~ Bf(~llttfr~in Tex~ routinely havy a copyof the IBEC

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PLR ~ri then- fi~es to share ~l4 ~~n~rs of busin~~es~i~uyers of 1usinYsses ~d J4e ~aWyers on behaJt~~~o~i~~U~~san(by~r~ lt l

Howeyer ~becauSe the national middotdebate h~middot h~aWd up middotregarding this issue of)registratioil or licensingIegarding business brokels13 lawyeiion behalfof C6ntry Business Inc (cat) (sQme twehty yearmiddotpost the JBEcn~quest for a PLR) serita written descriptionmiddotofthe activiti~sof

the bUsiness brokers working-at car to middotthe SEC and reqJiested another PLRmiddot rehiting to the activities of main street busiriess brokers OUcemiddotagam seemirig(y cdntraiyto middotthe holdi~g in Landreth and despitethefactLthatJthe lawyers (jnb~half0f CBl cIeEiriy identifiedmiddottliat CBI brokers occaSionally acted as brokersfor a syller~wh6 ulthnatelysbldtheir company through the

saleof~oC~~eSsectG ~~s~dtl1ePL~a~ch~4middot~~hibit B I - j j

TheCBIPL~dcampCribed activities thauhe SECdeehiedljermissible oya businessotdketWit1i6u(middot that hoker_risklngmiddotan SECgtenfurcemenFaeti01i and seemingly Yltiatlng any otiligatiohdr

requirementbymiddot thathrokerto middottie1ieensedmiddotor register~dbY-middotthe BEC14 The ~tiities ~eerried permissiblebyt4e SEC in the~middotCBr middotPLR wcregtvirtllally identical t()ihtfl activitiesdeemed peimissihle by the SECmthe IBECFLItalthough the CBI PLR WaS iss~edsohietWehly years aftertheIBECPLRbull lt i-- gt lt- iI ~ i l bull

The~~~~oiiomic realityan~~sai~ 6f b~sihess~middot d~~inn~sate not d~d ~hd they h~Jdri~tb~ because the basic underlying factS in the Landreth case are distinguishable from the facts in th~

Star Supply caSeThe holdings in Isandreth and StatSupply can be ~botlfjustitiedand recdridled with each othermiddot This j ustiHcationand teconcmationis~bestSet out-by the Fifthmiddot Circ-hitCourt of AppealsinVero Group vJSSServiceampystenietal5 saying the tWocasesStapSUpplVand Landreth) were factually different ThecQurt itttheVero basesaid- l lL

Given thos~ facts we are riot persu~d~d that the~h~g inLandieth w~uidcau~e t~h88l

the Texas spprem~ Court to ~himge therule of~Stirr supply and Ellsworth iffac~(l with

the finder~s fee issll~ befQr~ Ill i -Asan ao~i-fr~ud caseinvolving widebtok6PJisting Land~ethis factuallydisth)gJlis~bJ~from ~ot1iiEllsVorthan~StariSupply Jh~relevalt tbull

agry~me~t ~ ~~eJ~nlt~~t~~~ltw~ ~cent stP5~J)~r~pase ~gie~ment~etween th~ bly~g bull ~and selllI~gmiddot prlIlclp~ls t~ r~lchan~ agre~tn~p~~tlsllle lij Star SupplY and EllswQtthmiddot

[29] -a(illiii( irwt~tcentas6~middotwere-ihPse hitWii ~ flnQer andon~ orthe parties to 9Je eventUalstock transacficip Landr~tIi did D6t ilnpticate the issu~ of whether a buyer or

seiler ofa bu~i~es~ COQI~prop~rijrero~et(fpaYfdrthe~eryic~~of a~iiiiregister~dfijid~~middot mereiy b~calise the buy-ingaQd s~I1fiii(parPe~~glcjCtto eriiiJloya stock- fe to effectfthe

transfei of the business Rather Lan4reth iilVolved whether under the 1933 Act a bull ~ ~ iJImiddot _ _imiddotfmiddot~ ~middotmiddot middotmiddotltmiddotmiddotmiddotmiddot bull

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12 Understanding that the PlR s( i) did not carry the weight bflaw (ii) shy

wemiddotre releg~te~ to the facts presented in the letters upon which thE(Y were ~

based and (iii) applied only to the parties to whom the PLRs were directed 13 See The American Bar Association Report and Recommendations of the Task Force on Private Placement Broker - Dealers June 7 2005

14 In the tBr PLR the SEC a~s~tted that under the middotfacts presented no enforcement action wouldbe recommended See the SECCBI PLR page 1 15 Verd Group v ISS Service System et aI ~71 Fed~d 1178 (1992)

MEMORANDUM PAGE 4

security had to be registered under federallaw -to be said without implicating the anti- fraud provision ofthe AlttI6 ~ ~

Th~ Veto court was saying that Landreth wks a~ec~tielhraud~ase and Veto wasa finder fe~ (business brokersright toa fee) case TIreVirocourt rea$dri~dthate secUrities law~ shquld apply to fraud cases but when it comes to a broker attempting t6oiiecta corrimission when the ~le is from andowner operator tQgt an own~r Q~I~tpr the ~~econoinicrealitytest should apply ~ 7

(~t~s wort~ rioting ~atJheVe~o couqs Qscent 0-( the-retm fmdetJ- to describe thegtadions 0pound Vero W~ n()t the c(gtrrect descriptionof wh~tYeroqid Veto was in fact performing brokerage fullctions as beyond the introdu~tioilof tilelJ~yer to ISSUSA theyero court rioted Vero met wIth tperepresentativesofISS--USA andAJ)Tvero worked with the parties to complete IS8- USAsacqui~itiqn of APT Maintenapce frOlnADT~~ Clearly the actionsofVeroinWorking wi~h tl~~ pyentie~ weni beyondamer~jQtioductionas is the job ~faltrue~Hinden)

Landr~th did not strike down the -econoihiceaIitj or tli~lsa1~ otbu~~~ss dodtirie in ~ bU$~~ess brokerage cas~ ItW1iSnpt ~casewherea bUSinesgbroker was attempting to collecta~ fee J~~qrlt7$ was d~ciqe~corr~ctlymiddotin th~t it ~ppliedthe antjmiddotfiaudpr6vi~ioQS of theSecuiities A~tso~ s~ll~f ofa~ecurity who made false tepJ~sentaiiQ~~-to future fact$ and atteniptooto

use t~y e~lt)Uprn~ r~rlity or thy_salprofbusin~sw doctrines as a defense sayingthat thesalc was npta s~~urjties sale ~9 The Landreth Courtcorrectly heldthe sale ofbtisiness~doctrinedid not apply in that case 20 It did not say that the sale ofbusiness ltloctrine was dead Thc(iourt also did not say th(lt the mle of business doctripe coutd npt beappliedto Jgtl~sjness brokerage cases I ~lt ~-ir~lmiddot d J~-i

TheSEC andJheCowt iilyerqhave corr-eotyappliedand interpret~~lfLandrefu They euro~)ITectly have+~c~gWz~=l that asaie of a ppsm~$S~ from ownenoperatortlgtan oWner-uperatof~ with

liDJitedbrqkerinv91vement IS not t)letypeof tr~nsactioJith~tth6~sect~ctiIiJi~laW$ wen~ enacted tb regulate because the traditionaldefInitionmiddot of ase~ti~jty~ ~lt hivolve(dan investment of money in a common enterprise with profi~ to come sqleIYfrQm~h-e~ffort~ of 9~heJ~2I

J ~J I -1 i_~middotlt~~middot~

Further the SEChas carrecfl)f dealtwitha-kei troublesome issue that ispresent itf applyfug the sale of business doctrinebull That issueisthe appocationof the middotsaleoftlusmess doctrine applying any time there is a chailgeofcontroe2iii thebUSiliesSasdteittheq~estibrihecomes ~When does the middotcharlge of cOIltr61occutat asaie bf moiefuaIisOof the ~qUity~s6ihegreater

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percentage~ orsotne lesserpeiceiitag~ IH dealing VIlhWs issueth((BEC h~sreI~gated the ~no

actioncdterio~middotacco~~ingt6lh~IBEC9iijeearPLRs toasayen ofl0()~ftpelstlt)ckor equi~ int~~~ts iIl~ c~~p~~11U~ I~~uirewe~~g~~~~-~~ ~~~nt~~onc~Jjing the~lippery slope IIi ~elatlon to wheI~ you drawtlwl~e tqdcent~1Jl ~yqAtf(~lqhang~ri shy

In sum the ~conorriic r~aHty~ orrthe ~ale~fbusi~esidoctriil~s at6riohfead ~ndthey should not be dead when it comes to main street business brokers handling the sale of 100 of the stock or equity interests in a business under the parameters of the SECs logic behind the PLRs issued to IBEC andCBI and the reasoning of the Court in the Vero caSe and the other cases whose

- - ~

17

-~

16 Id at 1l~7 Star Supra ~t19~

18 Id at [1181] 19 Id at nU81] 20 Id at [1181] 21 Howey Supra at 301 -

22 Id at 2307

MEMORANDUM PAGES

holdings iuncontrary to the holdingjnLandreth middotTo clear up theldispute in the courts an explicit statutory exemption it~mizillg just whatcanmiddotbe done by main street business brokers is needed

MAIN STREEiBiJ~Ss ~~OKE~middot~middotT~PRO~RBIAL ~~~UAAEPEGIN THEROuNn HOLE~ - I i gt

In ~ddition to~~SE~s19~icbehmd th~ PLRs i~~~e4 t~ $EC ~d C13I middot~~middottIie r~op~g6f the CoUrt in the Vero ease andfthe othe~- cases whose7 holdings run COilttary to the ~IQldi~gii) Landreth the actual activities of main street amptislness brokers arguablyrlo not fail withiiithe con~tr~ts qfsome if notmost ofthe -statutes tl1at seek to govern the activitiesmiddotQftheAriain middotstreetmiddot business broker For exampie a Rule promulgated pursuanUo the~TexasSecutitiesActby the Texas Securities Board req~res that business brlt~ker~must regist~r in prder to Jegallyhandle mtraState se6uritles traDsattian~)~middotmiddotTcentXllSThe s~~fu~()ry baSisfor the Bll1ej~ c()n~e~ in the Texas Securities Act Art 58112(A) Article SSt-I2(A) states as follows

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Except as provided in Secti9~5 ofthis Actnp person fJi1p~ Qorpor~~oJ1 or g~aJC1r shall -lttifamptlyor through agcrn~~ptie~ for~ale selfoi naK~ a 1~~e of~y securiti~S J1 tIG~middot~~t~ -

Yithout fiis(bein-g i~gister~d as-~ ilf~s ACtprovld~4 NO ag~pt~s4~1l p)centhal(9f~y -) de~ler sell offer for saleor-make sale ofany secuntieswithirt theStite ilhles~ regist~re~r ~ _~

as=ariageni foithatpaiticularregiStered dealer under the provtslo~sotths Actmiddot - ~~ bullbull ~ - ~ ~ _ bull ~ ll 1 ~ ~ Jf ~_

I~ middotperfc~gout~es 0tl b~llalr of aselkr of a bls~es~~ the mairi _str~t busin~s~ 9r~cltr doys not shy-typiat1y pj~iform~y of thetuncpns described ipmiddottlietex~ Se~iuitiesA9t~(5~1-I2(A)f A miuilstre~tbli~~ess~brokeryenhooper~tes hi~ pr-her b~~e~s hi iu~ord~c~ withJheguidelines set out in either oftheIBECPLRor tbeCBl Ptltdoes not affet securities for sale The mamshystreet -business br~ker always offers the business fOf sale as he ot sh~ do~sIitkno-Vifthe buyer will offertobJymiddotthe assets ofthebusiness brmiddotthe~quity interes~middot6tthebuSi~ess

A businesects broker whooperaies hiso~ herbus~es~ iIimiddot accordan~~ With ~h~ gm~eiyeni~~e~_~utin either of the IBEC PLR or the CBI PLR is riot the one who sellsthe securities A businessmiddot

____ _broker who operates his Ofher business iriaccordance With the giIideliii~~set o~tin eitherof the illBe PLRmiddotor the CBIPLR does not- actually ~niake the sale of any securi~iesmiddot TheSeller ahd theseUerscounselhandleth~actti~lsilIeC -

( ~ _ ~ lt ~ ~ j ~middot~t ~ ~ 0 i-middotltt

In con~statypiccI)Sepes 1)~~~ns~d ~~~curitie~)~fk~ h~ a cust~IleI W~o callshiptmiddotariq ~~s him~b sfllt~~~ yen~b~o~o~tot PE stdkmiddotI~ts~c~ue~ btk~r hffS 1hfclieilt ijr custqme~ sign a poVer Ofatt(gtmey thebro~er th~il tak~sp()~Sesli~piI-ofthe stOckQ1-fersJhe~tock Kor sltilp Jgty plcicingit on the appt6ppateeXcIikIge~eils the stockfoa piirchas~r attnicentted1)y tnemiddotofferdmiddotmiddotmiddotmiddot

bull bullbullbullbull bull ~ bullbull bull I I - ~ ~ i ~~ bullbull bull bull bull bull - _

ac~ally~ Yith thepo~erof ~ttorneygiveiihifD 9~~ef1Yth~ s~Jle~tmake~ the s~letakirig posses~i()nrthCslt~~ptocee~s t~ansfe~g Owne~~_hip ~nh~st9C~io~t9-eselJermiddot tomiddot theb1yer bull and distributing the proceeds to the cust6merminusthe secufitiesbrokers commission A main street business broker does none of these activities -

~ - lt~ middot~~~imiddot middotmiddotmiddotltLt ~- lt njmiddotmiddot)1~gt~~~i~middotmiddot~~middot~ ~ ~_ ~ ~~ - ~-

Thisex~ple highlights theJactthat themain strecentjbisinessbrOker and what a typi~al bu~iness bull _ _ oJmiddot _ I - _ ~ y I - - bullbullbull _ ~ bull

broker does on oeliillfof a seller 0pound a business is(not eyen ltlose to what a ampries 7licensedsecuritieS l1rokerq6eson b~h~ifmiddotQf their ~lieDts themkins~~~t b~sines~ b~ok~iIi -the regulaibrysch~memiddotoft~eTex~s sic~dt~s1~(lsmiddott~~ prqyerbial ~quare p~g ina ro~d h61e~middot

-~ ~ ~ -

The statutory basis for registration of a business broker under the Texas Securities Act is challengeable based on what the main street business broker actually does on behalf of his client as compared to the language as contained in the Texas Securities Act Art 581-12(1) giving t~e

MEMORANDUM PAGE 6

~_-~

TexaS SecUrities Board the power to regufatetheaCtivitiesdciicribedmiddot The main street business broker does not -offer for sale sell or make a salebfany securlt1esmiddot ~23

Th~ argument against the Texas Securities BoardmiddotbeIng statutorily authorized to make aRule requiring business brokers to register Iies inAheactuahlCtivities of apfu1fcUIar businessect broker If in fact a business broker conducts his business without performirigany of the adsas containedin the Texas Securities Act ArtS8-12(A) theplth~r~existsi~ npib~isforreurogulation

bull I bull ~ bull ( bull bull bullbull 1 h bull bull bull bull

or that busme~s brokerS activiti~sby the T~~~Securit~e~ B~d1and its Rulesrelat~ng to that particUlar buS~ess broker do not apply to t~~( bqslPess broker

1 bull I ~1 ~~ _ ~ I bullbullf _

Anotheriexample canbe gleanedrfrom themiddotUtahmiddotOniforin S6cunties-Aci Sectidn61-1-B(l)(c) of the Utah- Uniform Securities Actstatesmiddotmiddoto middotc i-i lt -

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aro~~r-dealer ~eans any pe~s~ii e~~~g~~ il~~e ~~i~~s~ Ot~fl)l-9tiJ1g ~ans~~tion~ in r

secuhtles for-the account ofothers orJdr14ep~tsoilsowh ~ccount bull 1_ ~ ~~ ~ ~ f _ ~

A main street business broker who operates his or h~r busjness in accq~d~~e witht4yguldelines set out irigteith-ermiddotmiddotof the mEt lER ormiddotmiddotthemiddot CBI)LRd6~s rigfengage~ t4e~~filness of effectingtiimsaCti9ris in secuntiesfQI tli~)ic~p4nfofRfheiS-~QifbrOtIiemiddotpersqnSioWnf~~count The panii~~~~ltrb~qth~~~SPp~ ~~~e~9middotBtP~~F~q~Fethatth~~Ush1es~broker not offer for sale or SOlICIt the purcI1~e of~ ~ry-uqty pot ~YJ~~$at a_~~~unty pespld$clleave that advice and decision to the parties and tbeir advis01s not have a Ill8t~tja1tole i11_the J1(~goations

after th~ detisiori i~ made- to sell se~uiities~d Wil niery1y tac4it~te~tlle trmriiiUrialof infonnation or-documents between -the~buyerlliid s~iJ~r -or their ad~sors alia~rtaiirly riever actually effects the ttahsactiop in securities ThemiddotRar~s dnd tlie~lawjrei~~9 tli~~middot

_ ~ ~ ~ - - ~

The main street business hro~er w~o op~rates ~middothjsor h~rr bl)Siness in QCordancemiddotwith the guidelines ~ei outi] either of th~ linfcPLlfof theCBi PLRmiddotltioes ~ot Jall withinthedefinitionof a Btoker-deaItiundet the utah Uiufom~-Securities Act _The analogies relative tp ~ther states securitieslawsgOoriancioii _ i

M~i~ stre~tgt ~usi~e~~ h~~k~~~90 occasiQU~ll~~~~~~ middot~~~i~~~ 41middota tr~s~qtion r~hich Tes~its in the sale of SecUritiesWli~nabuslnt~Str~sectfef~pu~Suantto l- sale oCsecurities theiJUsiriess broker is not in on the decision to sell securities The pUsiness lgtroket does notmiddot prepare or complete the transfer documents The blsiness proker is tangentiaUy invo~ved in the traJ1sa~tion to say the most The transactions ate n6~ tradlH6rlaJ ~eclirilies tr~actions This is true leca~e the transactions do not irivo~vean irivesfiriehf~IUfmoheYina c6ffifuonCirit6ipii~~Withptofits to come solely from theefI6its ofothers i2l1iemiddotcentan streetbUsinds brok~~ i~ theprQverbiaJ squarepegirt around hole caught iIi aihorltcentsbfi~gulatio~ thafwe~~rioime~t to g9vemcent-~ii activitIes as long as those aetivitiesarecoIidudtedilliaccotdance with the IEEe PLR and the car PLR issued by the SEC and the oth~rpkairteterYcieseHhedinth(T~tb6~e rilid-~the~G~hes of Veros ilk _ il middotru j gt lt~ gt j

(~ ir)i 1 f~Ymiddot~middot~ middoti~ct~ ~lt t~gt~ ~

Effective November 2 2009 ame~dmentsto NASD Rul~s lP~2 an~ 1932 r~q~irycerain ilidividuals to pass tl1enewLiriiited 1~eph~~ritaHye3 i triJes1Pl~ht Bdiul Qu~lificafi~~ Examination (Series 79Exam) This Serie~19Eiiirn ieq~iteieAt46~s dbt appiy toinaiistreet bull business hibk(~fs but specifically api)Hesto indifid(lai~aifIitatei YlthFThRA ITemberftrills whose activities are limited to investmenti B~lIJkfng middotartdpdhcipaIsectwhosupervisesuCliactivities

~

23 TelasSecul-ities Act Artmiddot581~12(A I f24 Howey Supra at 301

MEMORANDUM PAGE 7

middotHowever the SECs Division of Trading and Markets (the Division) is presently considering a Federal registration exemption and simplified system of regulation for merger and acquisition intermediaries25 This consideration is based on the Alliance of Merger amp Acquisition Advisors (AMampAA) letter to the Division6

The most recent Proposed Model State Rules of MampA Brokers and Small Business Sales advocated by AMampM advocates for both (i) a federal and state MampA Broker proposed rules and middot(ii)middot an exemption or exclusion fromregiamp~~tiopmiddotifor business brokers who deal in smallmiddot business sale transactions27 The exclusion ot ei~mption for the business brokers who deal in small business sale transactions (j) should be based on the PLRs and legal arguments contained in this memo and (ii) is crucial to the main street business broker and the business oWners they serve

CONCLUS10ll1NDImCOlfl1ENJ)ATION t ~ ~ H )i lt ~ bullbull ~ 1 ~ to bull bull - bull j~

Under narrowly defined parameters both the SEC and the courts have supported the concept that a maInstreet business brokerdoes not need a license or n~gistration to be able to collect a fee

relating to the sale ofabusinessthaf is conCluded via the saie ofsecurities A federatexemption needs to be codified adopting those narroW pararnetersas set out in the SEC~PtRs -to IJ3~C and CHI and incorporating the reasoIiing iIi Vero Star Supply and o$er cases relative to state and federal licensing or registnl~on of~aih street business brokers

I have attached a summary of the e~emptionpararileter~asExhibit C These parameters were taken from both the IBEC and CIH PLRsand the relevant case law The parameters should be

offered up to the SEC and the other regulatory authorities as the baSis for the proposed statutory exemption

25 Federal Register Vol 74 No 75 Pg 18269 footnotemiddot7 26 Idpg footnote 4 arid footnote 7 27 SEle

httpwwwamaaonlinecom~ilesProposed SEC Rules for MampA Br6kers and Small Bu~~ne~s Sales 3-20-08 Finalpdf pages 1 and 3

MEMORANDUM PAGE 8

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International Business Exchange CorporatiinionDecember 12 i986

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SECURITIES AND poundxCHANGE COMMISSION WASl-iINGON ie 20SA9

~ 5101 JF middotMAJltE1 RrOUlAflOJ(

~ecember12 1986

Mr ao~bv J Johns Vice e teent nc=na~ional 3usiness ~xc~a~~sCo~pora~on

05~ Oflcmiddote 50x 15046 Aus~~n ~exaS 78761

Dea Mr Johns

~his is in =espon~e to YOU le~=er of November 3 1986 on gtehalf of the International ausiness Exchange Corporation (13EC) il whi~h yOU recues that he Division of-Iarket Regulation not recommenc~enfor~~mcn acionto the Commission if IBECdoes hot eaister as a broker~deialer in accordance wit~ Sec~ion 15 (b) oft~e Securi ties SxchangeAct6f1934 (Ex6han~e AC~I1) Bas~~ upon your lec~er and our c~rtversa~ tions I undeistand the facts to be as follows~

IBEC isa business broker headquartered in Texas ano 1 icensed as a -eal estate broker in those states inwhicn i Ci

bDe~ates 5E~IS activities ~onsist maihlv of sellino ~usilesses ~~2t agte goi~g conceRS and which may e organized as closelv ~eld cor~oatio~sJ-o)ec6-shios0= Da-trie-shi)s I3SCacce~-s listings ob~si1~ss~s -or themiddot purpo~e 01 - transferri~g ownership andconcrclrotn theseller to the ~rchase- While ownershl i5trans~er=edprimarilyby a scle of a busiriess1sassets where thebusitlessisorg~nizedasa cqorationtransfe~bE6wrie-shimayalsobeef=ected by a sa2eo a1middot1 the outstancing e~uity securities of ~1e ousiness

In return for assisting in the saleota business~ IBEC ceceilles a conunission that is JeSse uoon t~e OWOEIS acceoted Smiddot~11inmiddotgmiddot ~r~ce rmiddoteamiddotcmiddot1pssmiddot omiddotmiddotmiddotrmiddotmiddotmiddotmiddotmiddoto ltgtmiddotgt~middotsmiddot smiddotmiddotmiddotmiddotol 0 ltgto ~ ~h--- - a---- ( i ~ __ _ 1_ __ 4 _ - - _ -

transaction taECmiddots comnii5~ion isgtayable in cash and does _ _ _~~middottci~eS~middotlmiddotmiddotn middot~~~middot~middotumiddots~~ssmiddot_~IJ ~ei~~J Or I _irir1ucc _ CI~ft e~uitv~ _ __ _ 1_ _ ~ sold_

Ycu s-a~e tha~ only t~e ~sses cf the ~usinesses =eJre-S Q~-or ~v t3~C ar a li5~~d~~psalQ MO~~~VQrTq~c does-~~~_ __ - -J~ - _ ~ 1_ __ bull 0 _~~- -_-r J~

aCmiddote-~ise O~ otherwiseproroore th~ sale of securities Any

~~ 30bby J JOhmiddotn5 page Two

cecisi9n middottoefel=t tne transfex 95 aQusiness by mean~ 0poundmiddot a sect~iti~s salei ~ad3 solely by ~~he putcpase~ ana selleshyithout the recommeCiidation of IBmiddotEC~Once a decision is~maae by ~h~ tW9~artiesmiddottomiddotemiddotffec~ the middottransactionmiddot by a sale of ~ secutltiismiddot roecmiddotooesmiddotnotmiddotnegotrate middottne terms of the sal~ nor otfeomiddotaovieto ~ltherthe purchaser or seller aoou the value

s c the securi ties -

tBEc~ 5 coie i~middotn~gotiadon~Detw~~n the buye~ 2nd selle imiddotsl4iiiieci to transmi~ting cocutUerl~sb~ieen the two parties ~11 jo i~fOJ~~toln bulla9~ ~~ l~s ~ness ~~~ilig ofpound~rea torijsal~ ~9~(middot 1

~3S~ 15 sul~ecby t~e~sel~etbullIEECappr~~es pote~tal ~~ u=camiddotsemiddot~S that it has nc~ v~ri f ~d this irf9ana ti6~ and m~ke~ rO middotr9re~en~i3tions aOlt)utthegtaccuiCy qJ the i~fo~at~onmiddot_- p-mmiddotidecmiddot t~additionmiddot(fa~c doesriot handle rUndsorimiddot5~half- at ~i ~ner middotthepurchasermiddot or selle-or h~ve ~he authorltYfomiddotmiddoti

a~t on thei= behaif in oEde- to -efect the transaction~

_~il ~s~l~sci~~ middot~ade to amiddot siiigfti p~tmiddot6h~se~~g~O~p~~gt~ gturchase~s~formeawithout the assismiddottance omiddot~~taEC bull ~Mcireover~ ~

I 3=C - 9egtes llo ~s ~~~ ~urcampase=s i~middotCbtain~n9 ~~n~nc~ng fo~ middot~hemiddot~ -=-anSaGtiOD~IBEC~may i howevera- t-~e t~q1iesl-6f~ Epe _ puzchaser or$elle middotpiovide ~lrstC)fpoten~lallenQe-sl~Such asoankirw and middotmiddotv~ntuie capitafirns~ that hav~eXpr~sscentd~middot~[lmiddot~middot~ inte-est ine~tetld~n9cre~dit gt

You na~~e i~diCteJtha~ 13~S concern ~Souttieappitca~ t ion of t~e 5rQker~~d~alerregistraqon middoteqJ)i~ei]l~ll~s has ~~en heightenedbv the recent tinftedState~supmiddotr~meCourtoecTsi6nshy

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c6~ bull v Landredi 1

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2297 (1985

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( ta~jre~hl i in Land-eth themiddotS~Jrem~ Court n~la thatmiddot~he = 0= ~ middotmiddotltrcmiddote~e jcmiddot ~ as7=middot middot Omiddotmiddoti ~$~~ o amp ~--- ~~ -~-~~-- ~~ -~- J-~ ~ ~ar-lJ J_ ~l- fAo~ _ bull shy

~n--inc=e= ercenta ~ cqmparlll $(i~ocentk centons-ti~umiddot~middotec -a ~ 5 ecu- i ties i-ansactmiddotmiddoton el~ilec -~ middot~i9~ect igtn (i~ t~~ fecre=~l scuities laois 1 Tne ruling lhthe rA3tiqt~~h centaseepd~c -~e contFqv-2~sy cyen1ong thefederalcircuicour~soye=middot~he =licity o~th~ so-called u~~l~ qfb~~in~ssdoctrj_n~bull -21

- ~

J see also Gould v Ruefenach~ 1~5 S Ct 2308 (1985) tho1cfng thatthe~scieoiY percentor~amiddotqomany 15

st0ck involve~ ihesale of seurities fo~ ouraoses of t~~ pound~de~~i~~~dti~~li1~sL - ~ ~~ ~ltlt~~ ~ ~~ ~ 1

i seee bullc IEas)vmiddot~ RecentDev~qvmetl ~s 1Dthe S~le 0_ ~ ~ - ---- - j- -

Bus inessmiddotDoctliine 3 9 3~$i La929 c19 8~ f ( c~scLis 5 n ihesaie o~ gt~~iC1~-5smiddotdoc~lerr~i6r tmiddotOH the- =re~e

Cou-tls decison in La~drech~

middot~middot_4~middot_

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sa ct ion 3(a) (4 ) c= t~le xchang~ ~ctmiddot gene rally de in~5 ~ i b-o~s- as any pe-s~n 60 e~-~g~~(in~th~Fbu5plessmiddotof efec~ing traosactions in securities for middotths accd(int~dfmiddotmiddotmiddoto-tmiddothemiddotrs Unless an exempltcion i~ availaSie seCtion middot15( aj-8f~~the ExchangEiidt recqi~s ))toke~s tmiddoto reg isteiJlch trheComriilSs i911~ia a~do~dahci wi ttl the Drovisions of SecticrrrlS(bLTfiisof flee has ~radi~ionally l1dicated that individuals who donomiddotthitlc( rndie =han brina~erger and acbuisition-~inded~ersons o~ en~ities toaether andmiddot who do nd~~ar-ipoundcbate in lJ~grotiatin~f the r~aie of

secu=i-~ies~_f6r sh~remiddottn-ariy ~rpfitsreaize6 are probablv not btok~tsmiddotand wotILdindt ~~i~qubedto t-eQ 15 te~ ~smiddot shchj~middot I

Imiddot - - i bull bull bull _ yo - bullbull ~ ~

cont-astiwehave alsosaid middotti1at aotofessional whO brfncS - gt -shy

to~eth~rgt~C~~lti~~ ~u~~r~ ~i~~ ~~se~tei-s aii~ adlii ~es ~he pa~~~e~~ on q~e~ti~n~of ya)u~middot plays~nJttq~~q ~o~e Ln neglttiaIl119 tb~ tran~c~ ~on_ or -prorfdes Otner services -des igoad to - pound acilitate tlje trarisCilctmiddot(6nmay middotmiddotbedlietiu~dE6 oE(a lroker~ 3i

- imiddot~ ~-~- lt i ~ - bull shyi - bullbull

Based unon your reo~esentations the Division would not recoIime~deri~orc~meitt~act i-CN1 tO poundha GotnntigiQn jf raec-- aha i LS

emoloveesdonot iegistermiddot~itfimiddotthe Commissi6nas~br6ker~

deal~~~ ina9cotdqrc~~1ith~S~~~middotion~~t~) middot6f~h~ middot~xchartQe~ ~st~ In takLng hlS DOlntlbtirte note tfiat- (l)IBEC~hasmiddotamiddotllmltedmiddot ro11~~n ~~~Pttati9tls middotb~~~een~l~pd12~aseran~ seLf~r~(2) the bUSlnesSes reoresented bY I3ECare gOQr9 coricernsand not shell ft o~ganizati6ns~ (3) oril~ asse~~L~t~ ~d~erefied or o-he--wisemiddot offered for sale bv l~SCi (4) transac~iQlseffected byhte~n~~c~ 5~clrmiddot~~ie~ cdilY~yenmiddot~~tt~ middotb~si~S~l~~qu~~ylt sc~FL ~ ~e~ t(J a~ S1n~ le~ ptlr~l)~~~ ~ roupmiddot2~ ~ul9hse~t9~ed Wl tnoot t~e asslstance bfI3EC -(raquo IHEC doeS notaavJseehemiddot wo oa~~i~5 whmiddot hr 0 -j5 fseui~fo5--dra~1tis~ 7hetiallieoF I- _ ~--~ -~~ - __ I -7 ~ bull~ - ~gt ~ - lt ~~ _ ~ - ~

any sec~rtHS soJc (6 )i~~cIS COffins ns a tlpndqes r)otyarv

~~i~middot~~~~~~~b~iIi~B~~~~~~~t~~~ I~~~~~ii~~F ~middotmiddotc

yoll shoild be a~Jat~dl~ pound this it~ as~at-f-a6dI~on readin~nforcementactiorionly with reSli~cetoS~ction bull 15( a) ofmiddot je Excna-og e Act - Youmiddotmiddotamiddotpounde-middotmiddotremincleQmiddot9f~he~corrtinued~-

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se~ _~ a ~e ltt9 ~~ Rl~hmiddotQ~~g+ri~a~~~1~~iJ~~i_r~~)middot 19j Trans= Blnae] Be bull ~ec L R~p bull middotJCe)middottmiddot1fJmiddot7t Lelt~e=tOiav-Pac Manaoement Co ca~ed pece~5e20 1973 J~~ ~~r ian~s_~a ~~~~F~ ~~~~lt~s~ ~r~~~~limiddotSqS~~~i1~(middotr8~~middot~middot -~ ~-_ -0 ri_gtO ~Ul _y -l(L1~ G_t -~ middotJ f~middotmiddot middoteSbull

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~r oboy J Johns page Four

2gtgt1 icabil iy of tne 2nti-2U~ irovis ions of the federal securi~ies laws to transactions in which securities a~e used ~o transfer ownership of a business In additi6~ you should also unders~2nd that this nd-7a~jI~~i1pqsitiondoe5 not express a legal opinion about the 2~)lIcaTcinofthe federal secu=i~ies and is based solely uon the reprssent~tions you have made Accorcingly any cUffer-ent facts of concitions

umight result in a a~~~f~fe~~ir~fsR~pe _~

You have agie~d to waive tne provision~ of t~e Com-nissions ruie concerning phblea-tian6fmiddotn6~aitionianainterretiveletters and other =-i octsr comniunica~iors 07 CPR sect 200 81) t wh-i-hD-ovides

tfor ~he public availability ot oldttericom-nunica~ic~s tooethe= wigt a1Y- lt~i teen response ~~=eo( jO days afte tne date -o~su~h wri~CEm res)onse Your lat~er da~ed November 3 r 1986 ahd ~his letter shali -immediately be pla~ed in the Commission s public files

-~v~-y~~s~ - Afx bull I 7--J~~

Edward L Plttman Attorney O~fieeof Chief Counsel

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549

DIVISION OF

MARKET REGULATION

November 8 2006

Craig McCrohont Esq Holland amp Knight LLP 131 South Dearborn Street

middot Chica~o IL60603

Re Country BUsiness rile Request for No-ActionRelief

Dear Mr McCrohon

In your letter dated November 8 2006 on behalfofCountry Business Inc (CBf) you request assurance that the staffofthe Division ofMarket Regulation (Staff) will not reCommend enforcement action to the Commission unde~ Section 15(a) ofthe Securities Exchange Act of 1934 (Exchange Act) ifCBI engages iIi the activities described in your letter Without registering as a broker-dealer under Section 15(b) ofthe Excenthange Act

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Based on the facts and representations set forth in your letter the Staffwill n()t recommend enforcement action to the Commission under Section 15(a) ofthe Exchange Act if CBI engages in the activities you describe withoutregistering as a broker-dealer We note in particular yoUr representations that (1) ifa decision is made to effect the transaction by a sale of securities CBI Will have a limited role in negotiations between the seller and potential purchasers or their representatives as described in your letter and will not have the power to bind either party in the trailSaction (2) the business represented by CHI is a going concern and nota

middot shell organization (3) th~ Selling Company satisfies the size middotstandards for aSmall business putsuant to the SmaIlBusiness Size Regulationsissuoo by the US SmaIl Business middot Administration (4) only assets Will be advertised or otherwise offered for sale by CBI (5) ifthe transaction is effected by means ofsecurities it will bea conveyance ofall of the businesss equity securities to asingle purchaser Of group ofpurchasers fomed without the assistance of CBI (6) CBI Will not advise the two parties whether to issue securities or otherwise to effect the transfer ofthebusiness by means ofsecurities or assess the value of anysecurities sold (other than by valuing the assets ofthe business as a goingconcem) (7) CBIscompensation will he deteniliried prior to the decision on how to effect the sale ofthe business will be a fixed fee hourly fee a commission or a combination thereof that is based upon the consideration received by the seller regardless ofthe means used to effect the transaction and willnot vary accordillg to the form ofconveyance (ie securities nither than assets) (8) CBIs compensation will be

received in the amounts and at the times as described in yourletter~ and(9) CBI will not assist

Craig McCrohon Esq IfNovember 82006

Page 2

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SiIJcerely

ilt Brian ABu~sey j P

As~istantqrief Co~el

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EXIDBIT C SECURITIES TRANSFER EXEMPTION PARAMETERS

FOR MAIN STREET BUSINESS BROKERS ~ I ( ~

In accordance with the parameters)~set out -by the 1JK~ Securities ifudItxChange Conimissions Private Letter Rulings issu(fd to International Business Exchange Corporation on Deceinber 12~ f986 and to CC)intiY Business iriCmiddot(ltljr~~eni6ei82o06~ urtdet tlieieaspning ill Vero Group -~ ISS SrviceSy~~eI11 ~tai ~ttf~lid d~7~ (~ ~9~Y and~e centaS~~)n ~iiie wfrttv~ro and Star amp-~PI)I ~ornP~y ~nes~ 65 S~7~J9~J(1~984)~~ t~~ f~(WWamp ~~tss~~114 bfCR~i~~d to formthe basts -of a fed~raJ ~fCemptio~~HlatI~e tg ~tctff~fts 119~tlsmg pr reg~~~ratlpp_ 9f zpam street businesshroker$ when those b1Smessmiddotbrollt~isJare involve~in the $aie of~~pu~in~ssthat results jn a securities transaction - shy

The permitted activities of thebti~lhess broker under the exemption are proposed as fltgtllows

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1 In marketing a busmb~s ili~ business broker will only advertise to potential buyers that the ~businessiSfor sale

2 The businessbrokerwilfrtbt advise either the buyer or seller that the transactibtl be completed via a sale or purchase of securities

3 If the decision is made to conclude the sale of the business via a sale ofsecurities it will be made by the buyer and seller or their advisors without the business brokers adviCe

4 After the tiIDe if any the decision is made that the sale transaction will be a securities sale the business broker will then have a limited role in the negotiations -_ between or among the parties and will merely facilitate the tnmsmittal of information or documents between the buyer and seller or their advisors

5 In no event will the business broker have the authority to make binding

agreements on behalfofany party to a securities transaction 6 - The business broker will not assess the value of any security or equity mterest to

be sold but may assesS the total value of the assets or the business to be sold as a going concern

7 -The business broker will not be involved in the formation or set up of the buyer or

the buyer group _ _ 8 The busin~ss broker will not assist the buyer in obtaining financing 9 However the business broker -may provide uncompensated introductions toshy

lending sources that the buyer may consid~r for the transaction The business

broker also may help mcoIilpleting the paperwork associated whh loan applications for the bllyer in order to assist in completing the transaction

10 The compensation to be paid to the business broker will not change regardless of _the manner in which the sale is concluded (whether asset sale or the sale of securities)

11 In no event will the business broker accept any equity securities as compensation if the sale resultsinJthe sale ofthe equity in the business (a securities tninsacti(j)n)

EXHIBIT A - SECURITIES TRANSFER EXEMPTION PARAMETERS PAGE 1

12 The busin~ss broker will always advise potential buyers that the business broker does not and will not verify the information given to the business broker about the business

13 The business broker will also advise potential buyers that the business broker does not make any representation about the accuracy of the infomlation provided

regarding any aspect fthebllSiness 14 The business sold will not be a shelf entity 15 _Thebusinessbroker~ ~ill nothanclle thetransfer of funds from a buyer toa seller

but may accept eamest money from a ~uyer for depQsitwith a third party escrow agent

16 The business broker will always be subject to the anti-fraud provisions of all securities acts of the United States

17 The size of the entity being sold would not matter as long as the sale was from an owner ()perator to an owner operator or to a Qualified Investor as that term is

defined in- the Securities Acts -

I

EXHIBIT Aft - SECURITIES TRANSFEREXEMPTION PARAMETERS_ PAGE 2

Page 2

(i) a federal and state MampA Broker proposed rules for those who want to be able to provide services beyond those allowed in the IBEC and CBI PLRs such as raising private equitymiddot capital and seeking to put investor groups together to buy businesses andmiddot

(ii) a federal and state exemption from licensing or registration for main street business brokers who deal in small business sale transactions in accordance with the BEe and CBIPLRs

The exemption for main street business brokers who deal in small business saJe transactions is crucial to the profession and the business owners they serve The cost to obtain and comply with federal and state licensing or regulation would be prohibitive for main street business brokers who are selling restaurants dry cleaners and other small businesses which upon an occasion involves selling the stock of the business rather than just its assets All of these businesses fall within the definition of a small business as defined by the US Department of Commerce and the Small Business Administration

Industry studies reflect that there are approximately 130000 business sale transactions per year in the US of which only 4000 transactions involve businesses valued at $1 million or more Less than 15 of these transactions involve the sale of privately held securities Furthermore business brokers handle only about 35 to 40 of these transactions Many of these transactions are handled directly between Buyers and Sellers sometimes with the help of their accountants and attorneys Business brokerage is a very small profession with less than 3500 companies in fpe US calling themselves business br()kersLitigation with business brokers for viohitions ofpublic trust have been few and rarely get to the level of the federal court system The cost to regulate or even Fegister business brokers will far and away exceed any reasonable public benefit Codification ofan exemption for main street business brokers will clarify practices permitted by main street busin~ss brokers and would benefit the public~

In support of our po~ition on this matter enclosed is asummary of the PLRs and judicial rulingsrelating to the issue that has been compiled by the Texas Association of Business Brokers GeneralCOllllsel John C Willems III Mr Willems memo traces the support that the SEC and the courts have given t~ the statutory exemption we propose and summarizes the activities which main street business brokers may engage in order to qualify for this exemption

As a member of the US Securities arid Exchange Commission we hope that you will support the Texas Association of Business Brokers position for a federal andmiddot state exemption to be codified adopting the

parameters of the SECs PLRs to IBEC ~nd CBI relative to state and federal licensing or registration of main street business brokers

RespectfulIy ~Tabb Inc

lJt~ BY~

John M Miller President

Enclosures

CC Kathleen L Casey Elisse B Walter Luis A Aquilar Troy A Paredes





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November 8 2006




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November 8 2006




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November 8 2006




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November 8 2006




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November 8 2006




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November 8 2006




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November 8 2006




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November 8 2006




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Documents

Request that the Commission conduct rulemaking to codify a ... · OF BUSINESS BROK:ftR.$ October 19, 2009 Ms. Mary Schapiro ... a federal and state exemption from licensing or registration