California has enacted a new law (effective January 1, 2016) that provides a statutory exemption for “finders” from the broker-dealer certification requirements under the California Corporate Securities Law of 1968 (as amended).
This new law may assist smaller companies seeking to raise additional capital.
The purpose of the law is to provide guidance to those natural persons who seek to act solely as a finder (and to issuers who seek to use finders) in securities transactions in California as to what may be permitted (and prohibited) finder activities and to permit such natural persons to be compensated for those finder services, provided they satisfy the statutory requirements, without complying with the California broker-dealer rules and regulations.
Additionally, it is envisioned that the new law may assist smaller companies who are seeking to raise additional capital by providing them with an additional permitted means of doing so.
The new law sets forth:
- A definition of “finder” (which applies only to natural persons meeting certain transactional criteria);
- Certain activities which may not be engaged in by the person seeking to be deemed a finder (such as participating in negotiations, advising as to value of the securities, taking custody of any funds in connection with the transaction, among others);
- Certain requirements that must be complied with by the finder (such as filing requirements, entering into written agreements among the finder, the potential investor and the issuer covering certain statutorily required subjects); and
- A requirement for finders to maintain and preserve certain records for a statutorily mandated period.
Here’s the Full Text of the bill.