Companies seeking to raise capital from outside investors might turn to an intermediary to help them identify or connect with new investors. Before retaining an intermediary, however, it is imperative for the company to determine whether the intermediary is a finder or broker according to the United States Securities and Exchange Commission (the “SEC”). If the intermediary falls within the definition of a broker under the SEC Act of 1934 (the “Act”), they must be a registered broker or dealer. It can be a perilous trap for the unwary for a company to use an unregistered broker. Companies that use unregistered brokers expose themselves to significant legal liability, and could face penalties and fines, rescission of the offering, and may jeopardize the reputation and future of their company.
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