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Date
Rule
802.41, 801.50(a)
Staff
Michael Verne
Response/Comments
Whenever any person(s) contributing to the formation of an entity are subject to the requirements of the Act by reason of 801.40 or 801.50 of this chapter, the new entity need not file the notification required by the Act and 803.1 of this chapter. Scenario 2: There would be no filings required. No one is receiving a controlling interest in the formation, so that is exempt. The Newco is not deemed to be acquiring a controlling interest in LLC1 (see 801.50(a) - In the formation of an unincorporated entity (other than in connection with a consolidation), even though the persons contributing to the formation of the unincorporated entity and the unincorporated entity itself may, in the formation transaction, be both acquiring and acquired persons within the meaning of 801.2, the contributors shall be deemed acquiring persons only and the unincorporated entity shall be deemed the acquired person only.)

Question

From:(redacted)

Sent: Thursday, October 25, 2007 1:39 PM

To: Verne, B. Michael

Subject: Joint venture question

Hi,Mike -

Ihave another question for you in connection with the formation of anon-corporate joint venture ("Newco"). A and B (which are their own UPEs)are each contributing 25% of their membership interests in LLC 1 (whichis also its own UPE) to Newco in exchange for less than a controlling interestin Newco. Others will contribute cash to Newco. We understand that theformation of Newco will not be reportable unless a person will control Newcoand the jurisdictional thresholds are met.

However,regardless of whether the formation of Newco is reportable, it appears thatthere may also be a potentially acquisition of LLC 1 byvirtue of the fact that Newco will hold 50% of its membership interests as aresult of the formation.

Scenario1

AssumingNewco is controlled by a partner ("Controlling Partner"), it seemsControlling Partner would need to make two HSR filings (and pay two fees) inconnection with (a) Newco's formation and (b) obtaining control of LLC 1 as aresult of formation. I assume that LLC 1 wouldalso have to file as an acquired person (in connection with ControllingPartner's obtaining control of it). Do you agree? Suppose that ControllingPartner contributed $100 million cash (and no other consideration) to theformation of Newco (and that the total assets of Newco, determined inaccordance with the rules, are $200 million and the collective value of the 50%interest in LLC 1 can bereasonably estimated to be $80 million). I assume $100 million would be thetransaction value reported by the Controlling Partner in connection with theformation and the value reported in connection with obtaining control of LLC 1 wouldbe $80 million.

Scenario2

Assumingthat Newco is its own UPE, there would be no filing in connection with theformation but Newco would have to file in connection with obtaining control of LLC 1,assuming that the jurisdictional thresholds are met and no other exemptionapplies. LLC 1 wouldfile as an acquired person in this scenario too. Do you agree? Suppose that thetotal assets of Newco are $200 million but the value of the 50% interest in LLC 1 is,again, reasonably estimated to be $80 million. I assume $80 million would bethe reported transaction value.

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