What's Legally Needed to "Broker" a deal?

May 01, 2024

by a searcher from Kennesaw State University - Coles College of Business in Atlanta, GA, USA

In order to broker a deal (buy or sell side), are there:

1. Any certifications needed by any state or federal body (SEC for example) or
2. If the transaction involved interest in real estate (the sale or lease transfer), is a real estate license needed"

Wondering if the above is contingent on deal size too. If I'm working with someone who is using the term(s)/language "broker" but has none of the above, is that a red flag?

Thanks in advance for any insight/advice.

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Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

I was at the forefront of getting the 1934 Securities Act changed. The President signed the new law on###-###-#### It went into effect after 90 days. Here are the key points.
1) Anyone can broker a business in either an asset or a stock structure if the seller's reported EBITDA is <$25 M or sales are <$250 M provided the buyer is "active" after the transaction. There are few more conditions, like the broker cannot be a party to financing the buyer except commercial lenders, the criminal record, and more.
2) The new law does not change any RE laws at the State level. As mentioned above, 17 states require RE license for a sale of RE. To my knowledge, lease transfer is not a RE transaction unless you collect commission.
3) As ^redacted‌ said, the laws apply to the "activity" not to the form of engagement.
4) There are exceptions for a "finder" to get paid since###-###-#### They have not changed.
5) The new law applies to buy-side or sell-side brokers.
6) Trade associations are working with NASAA to harmonize all State level securities regulations. NASAA is an association of all State regulators.

Reply by a searcher
from University of Tennessee in Nashville, TN, USA

Reaffirming what has already been shared, there is no universal requirement for licensure or certification to be a business broker. With the exceptions to the handful of states that do require some form of licensure (broker, real estate, etc.), anyone who breathes can hold themselves out to be a business broker. The licenses and credentials don't ensure that the Seller is being responsibly represented or that the transaction will go any smoother than an off-market deal.

There are several professional organizations that credential brokers and advisors. IBBA (CBI), FINRA (RBB), ABBA (ABI), AMAA (CM&AA), IMAA (M&AP) are a few that I am familiar. Additionally, some state business broker associations have special certifications that you can earn (i.e. Georgia's BCB). There are also several business valuation certifications that are available through associations such as the AICPA and BVA.

The best brokers/advisors are far and few between. Anyone can hold themselves out to be a broker, so don't be turned on or off if someone doesn't have a license or letters behind their name. The business that they rep is what is of paramount importance.

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