The question of whether an unlicensed person may be compensated in a securities transaction continues to bedevil practitioners. Usually, the question arises in the context of a private placement or other capital raising activity. However, the question also crops up in merger and acquisition transactions.
Some may not be aware that California has adopted a rule exempting merger and acquisition specialists from its broker-dealer registration requirement. Rule 260.204.5 exempts any person who effects transactions in securities in California only in connection with mergers, consolidations or purchases of corporate assets, and who does not receive, transmit, or hold for customers any funds or securities in connection with those transactions.
This exemption does not solve all licensing issues. For example, there is no corresponding exemption from broker registration under the Securities and Exchange Act of 1934. Also, the exemption does not apply to California’s licensing requirements under the Real Estate Law. That law defines a “real estate broker” as any person who sells or offers to sell, buys or offers to buy, solicits prospective sellers or puchasers of, solicits or obtains listings of, or negotiates the purchase, sale or exchange of real property or a business opportunity. Cal. Bus. & Prof. Code § 10131(a). A “business opportunity” is defined in the Real Estate Law to include the sale or lease of the business and goodwill of an existing business enterprise or opportunity. Cal. Bus. & Prof. Code § 10030.
Some will remember that the real estate law became a big issue for licensed broker-dealers after the court’s holding in All Points Traders, Inc. v. Barrington Assocs., 211 Cal. App. 3d 723 (1989). That decision resulted in a quick legislative fix for licensed brokers through the enactment of Cal. Bus. & Prof. Code § 10008.5.