Who is allowed to be paid to raise your money

A sponsor who is short on the raise finds someone well-connected and makes the natural deal: bring me investors, and I will pay you a percentage of what they put in. That arrangement, so ordinary it feels like it cannot be a problem, is one of the more dangerous things a sponsor can do without a lawyer, because it may have just created an unregistered broker, and an unregistered broker can hand every investor they touched a right to their money back.

The rule and the tripwire

Section 15(a) of the Securities Exchange Act makes it unlawful to act as a broker, effecting transactions in securities for compensation, without registering. The word that does the work is compensation, and the specific form that triggers broker status most reliably is transaction-based compensation: pay tied to the amount raised or to whether a sale closes. A flat fee for a defined service is one thing. A percentage of the money someone brings in is the classic mark of a broker, and paying it to an unregistered person is where sponsors get into trouble.

Transaction-based pay to an unregistered person is the bright red line, and it is drawn in a place most sponsors walk across without noticing.

Your own people: the issuer’s exemption

The sponsor’s own officers and employees can help raise the sponsor’s own deal without registering, under the issuer’s exemption in Rule 3a4-1. It comes with conditions: broadly, the person cannot be subject to a statutory disqualification, cannot be compensated by transaction-based pay for the securities activity, cannot be primarily a securities salesperson, and is limited in how and how often they participate. Confirm the conditions against 17 CFR 240.3a4-1. The through-line is that the exemption covers genuine members of the sponsor’s team doing a limited role, not a salesperson paid on commission to move the deal.

Finders

The gap sponsors want to slip through is the “finder,” someone who merely introduces investors for a fee. The problem is that federal law does not give finders a clean lane.

Because there is no federal finder exemption, a “finder” who takes transaction-based compensation is exposed to being treated as an unregistered broker, with the sponsor exposed alongside them. The label “finder” does not change the analysis; the conduct and the compensation do.

The structuring consequence

Decide who raises your money, and how they are paid, before you promise anyone a cut, because the promise is the moment the risk attaches. If you want outside help raising capital, the safe path is a registered broker-dealer. Keeping helpers to your own team under the issuer’s exemption is workable within its limits. Paying an unregistered outsider a percentage of the raise is the arrangement to avoid, because when the deal sours, that percentage is the first thing an investor’s lawyer finds, and an unregistered-broker problem can unwind sales the sponsor thought were closed.