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OCTOBER 2016

New Finders Exemption Awaiting Final Regulations

A new statutory exemption for "finders" from the California securities broker-dealer registration requirements took effect earlier this year

Finders—typically understood to refer to individuals who merely introduce issuers and potential investors—are often critical to the ability of small companies to raise needed capital, but can often inadvertently run afoul of broker-dealer registration requirements. This new exemption, codified at Cal. Corp. Code §25206.1, allows individuals who meet the statutory definition of “finder” and who satisfy certain other requirements to receive transaction-based compensation without having to register as a broker-dealer.  The exemption stems from a 2012 legislative proposal initiated by the Corporations Committee of the Business Law Section of the California State Bar in an effort to facilitate the use of finders in California. For more on the background and reasons for the legislative proposal, click here. The California DBO has yet to issue its final regulations implementing the exemption (including an initial statement of information form which will need to be filed with the DBO). The official comment period for the proposed regulations ended July 15; it is hoped the final regulations will be in place by the end of the year. Once the exemption becomes fully available, it could make a significant difference for smaller companies looking to raise needed capital in California.