Ohio owners: rollover equity and the state dealer rule

An Ohio owner who sells a controlling interest and keeps a stake is doing two things at once: selling part of a company, and taking new securities in the buyer's company. The second part is the one owners overlook. This guide covers why it matters, what Ohio's securities law says, and what to gather before you talk to a partner.

The stake you keep is a security

When you roll part of your value into the buyer's company, you receive equity in it, and federal law treats that equity as securities. That is why the federal exemption for M&A brokers requires that a seller offered securities, such as rollover equity, receive the issuer's latest year-end financial statements, a recent balance sheet and information on its management and operations before becoming bound (15 U.S.C. 78o(b)(13)). The same exemption covers only deals where the buyer takes control and is active in management.

Ohio's dealer licensing law

State securities law sits alongside federal law, and Ohio's is direct about it: "No person shall act as a dealer, unless the person is licensed as a dealer by the division of securities" (Ohio Revised Code 1707.14), subject to the exceptions in the statute. How that applies to a particular stock sale or rollover is a question for your attorney, and it is worth asking early if your deal includes any stake in the buyer.

A pure cash sale of company assets raises different questions from a sale of shares with a rollover. Your attorney and CPA should see the proposed structure before the letter of intent, not after.

Stay in good standing with the Secretary of State

A partner and its lender will ask for proof that your company exists and is in good standing in Ohio. The Ohio Secretary of State issues certificates of good standing online; you need the entity number, which you can find through the state's business search (Ohio Secretary of State, Ohio business search). Certificates are issued only by the Secretary of State, so be wary of mailers offering to get one for you at a markup.

What to gather first

• Your entity documents: articles, operating agreement or bylaws, and any buy-sell agreement with co-owners.
• Three years of financial statements and tax returns, with owner expenses marked.
• A list of trade licenses, who holds them, and how each would carry over.
• Your biggest customer and vendor contracts, and whether they need consent for a change of control.

Control, not a minority check

Everything above assumes a partner who buys control. If you want to sell a small share and keep control, that is a minority investment, not the deal this site is about. We do not arrange minority investments or growth-capital raises; if one may fit, we can refer you to a registered broker-dealer.

Before any meeting, read what a controlling partner expects from you; it will tell you which questions to ask.

Retained ownership and future upside are possibilities, not promised second paydays. Rolled or retained equity is usually illiquid, often a minority position behind acquisition debt, and can lose some or all of its value.