The coming wave of business exits will not just test markets. It will test the people business owners may rely on to get deals done. As increasing numbers of small and mid-sized businesses come to market, the role of intermediaries – whether brokers, advisors, or “finders” – becomes more apparent. At the same time, the legal framework governing those intermediaries may go unnoticed because most business owners simply approach a sale as a commercial process no different than selling an old piece of manufacturing equipment. They expect someone to identify a buyer, negotiate terms, and bring the transaction to closing. In many cases, that expectation is met. What is less often considered is that an intermediary’s role is not purely commercial; it exists within a regulatory regime that can directly affect the enforceability and durability of the transaction itself.
That regime begins with the Securities Exchange Act of 1934, which makes it unlawful for any person to “effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security” unless registered as a broker-dealer. See 15 U.S.C. § 78o(a)(1). The definition of a broker is very broad, encompassing “any person engaged in the business of effecting transactions in securities for the account of others.” See 15 U.S.C. § 78c(a)(4).
Notably, the statute does not distinguish between large and small transactions, or between public and private companies. Instead, it focuses on whether a transaction involves a “security” and whether a person is engaged in the business of effecting transactions in those securities. Courts applying this framework have consistently emphasized conduct over labels, examining what the intermediary actually does rather than how the parties describe the role.
Section 15(a) of the Exchange Act prohibits a broker or dealer from “mak[ing] use of the mails or any means or instrumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security … unless such broker or dealer is registered.” 15 U.S.C. § 78o(a)(1); SEC v. Almagarby, 92 F.4th 1306, 1315 (11th Cir. 2024) (“Unregistered dealers are prohibited from buying and selling securities in interstate commerce.”).
Within this framework, certain indicators of broker activity have emerged with consistency across enforcement actions and judicial decisions. These include soliciting or identifying buyers, participating in negotiations, structuring or facilitating the transaction, and receiving compensation contingent on closing. Transaction-based compensation, in particular, has long been viewed by the SEC as a hallmark of broker activity because it ties compensation directly to the success of a securities transaction. See SEC Guide to Broker-Dealer Registration.
For business owners, the relevance of this framework turns on how a transaction is structured. If a business is sold through an asset sale, the transaction typically does not involve securities, and the broker-dealer framework is generally not implicated. Many small and mid-sized service businesses are structured this way for tax and liability reasons. However, that structure is not universal, and transactions frequently evolve during negotiations.
Where a transaction involves the transfer of stock, membership interests, or other forms of equity, it is a securities transaction even if the buyer acquires full control and intends to operate the business. At that point, the intermediary’s conduct must be evaluated under the federal securities laws. What may appear to be a routine business sale from a commercial perspective can, as a matter of law, fall squarely within a regulated activity.
Congress addressed this tension in 2023 by enacting a limited exemption for certain intermediaries involved in private company sales. Consolidated Appropriations Act, 2023, Pub. L. No. 117-328, div. AA, § 501, codified at 15 U.S.C. § 78o(b)(13). The exemption permits qualifying intermediaries to facilitate transactions without registering as broker-dealers, but only under defined conditions.
Among other requirements, the intermediary must reasonably believe that the buyer will acquire control of the company and be active in its management following the transaction. The exemption also applies only to “eligible privately held companies,” generally defined by size thresholds tied to revenue or EBITDA. It further imposes specific limitations, including prohibitions on custody of funds, binding parties to transactions, and participation in public offerings.
Importantly, the exemption provides relief only from federal registration requirements. It contains no express preemption of state securities laws. As a result, state securities laws continue to operate alongside the federal framework. In New York, the Martin Act provides broad authority over securities transactions and enforcement. In New Jersey, the Uniform Securities Law prohibits acting as a broker-dealer without registration. See N.J.S.A. 49:3-56. In Connecticut, similar requirements apply under Conn. Gen. Stat. § 36b-6. These statutory schemes raise there own pitfalls for intermediaries.
All of these requirements represent real risk to those having a business that buys and sells small businesses. In 2025, the Commission charged Paul McCabe and PMAC Consulting with acting as unregistered brokers in transactions involving private-company stock, alleging that they negotiated deals, advised buyers, and received substantial transaction-based compensation without registration. See SEC Press Release No. 2025-19. In an earlier proceeding, the SEC found that True Capital Management engaged in unregistered broker activity over a multi-year period while receiving transaction-based compensation in connection with securities transactions. See Exchange Act Release No. 98354 (Sept. 22, 2023).
These enforcement actions are instructive not because they involve large or complex institutions, but because the underlying conduct mirrors what occurs in many private-company transactions. Soliciting counterparties, participating in negotiations, and being paid upon closing are not unusual activities. They are routine features of the small business aquisition process, and it is precisely those features that trigger regulatory scrutiny when securities are involved.
There is a further layer of risk that applies regardless of registration status. Rule 10b-5 makes it unlawful, in connection with the purchase or sale of any security, to make any untrue statement of a material fact or omit material information necessary to make statements not misleading. See 17 C.F.R. § 240.10b-5. This provision applies broadly to participants in securities transactions, including, in certain circumstances, even sellers involved in small private placements.
In the context of small and mid-sized service businesses, that risk is not theoretical. Many smaller businesses lack audited financial statements or formal internal controls. Intermediaries often assist in presenting financial and operational information to prospective buyers. If such representations are inaccurate or incomplete, the issue does not remain confined to the intermediary; it becomes embedded in the transaction itself.
For business owners, the takeaway is not to avoid intermediaries, but to approach them with informed expectations. A competent intermediary should explain how the transaction is likely to be structured and whether it might involve securities. The intermediary should also be transparent about its regulatory posture, including whether it is registered or relying on an exemption. Finally, the process should reflect a disciplined approach to financial disclosure and diligence.
Moreover, business owners should not expect that potentially unlawful conduct will always lead to the rescission of a commission agreement. For example, the Second Circuit has reasoned that a stock purchase agreement that does not require a broker to engage in an unlawful transaction, i.e., “quintessential dealer activity”, will not lead to the rescission of the underlying transaction. As recognized by the Court, “because the contract can be performed lawfully, and because the contract is silent as to if, when, and how Auctus could sell discounted shares of Xeriant stock on the market (assuming that is, indeed, unlawful), the contract has not been made in violation of the Exchange Act.” See Xeriant, Inc. v. Auctus Fund LLC, 141 F. 4th 405, 413 (2d Cir. 2025).
There are, of course, alternatives to the retention of intermediaries who may skirt regulatory compliance. Owners can pursue a more direct process, working with their existing legal and accounting advisors to identify buyers through industry relationships, competitors, or management peers. Potential acquirers may also be owner operators actively seeking to acquire and run additional small businesses as a natural function of their prior success. A “trusted advisor” path can be very effective, particularly where the likely buyer pool is identifiable.
Regardless of the path chosen, the regulatory framework governing purchase transactions is not informal or discretionary. It is statutory, often enforced, and applies based on structure and conduct rather than terminology. For business owners, the question is not simply who can find a buyer. It is whether the process – and the people involved in it – are aligned with the legal framework that protects the seller and governs how the transaction must be executed and sustained.
