Question
October 25, 1991
Thomas Hancock
Premerger Notification Office
Bureau of Competition
Room 303
Federal Trade Commission
6th Street & Pennsylvania Avenue, NW
Washington, D.C. 20580
Re: LIMITED LIABILITY COMPANIES
Dear Mr. Hancock:
I appreciated you taking the time to discuss our concern over filing the Premerger Notification Form in connection with the formation of a limited liability company. Because our clients are under a confidentiality agreement with respect to this transaction, I will not use the names of the parties involved. I will, however, outline the nature of the transaction.
Company X is a United States corporation with assets over $100,000,000.00. Company Y is also a United States corporation with assets over $100,000,000.00. Company X and Company Y desire to form a joint venture to conduct certain business operations. Company X and Company Y will each contribute one-half of the funds necessary to start the joint venture. It is estimated that the initial contributions by each company will be well over $30,000,000.00.
Company X and Company Y desire to set the joint venture up as a limited liability company (hereinafter referred to as Company A, Limited Liability Company). I have attached a copy of the Utah statutes which discuss formation of a limited liability company. I have also attached a revenue ruling which classified a limited liability company as a partnership for federal tax purposes.
Company X and Company Y will each be fifty percent owners of Company A, Limited Liability Company. Under the statute, Company X and Company Y are called members. Under the proposed Articles of Incorporation for Company A, Limited Liability Company, each of the members, Company X and Company Y, have equal rights with respect to management of the limited liability company. Each of the members is entitled to one-half of the profits and each will bear one-half of the losses. Of particular note, no certificates evidencing the respective rights of a member need be issued. Instead of a board of directors, limited liability companies may be run by the members or managers.
As I indicated over the telephone, we are concerned that if we treat the formation of the limited liability company as an asset acquisition, then each time capital of over $15,000,000.00 is contributed to the limited liability company, both Company X and Company Y will be required to file new Premerger Notification Forms. In contrast, if the formation of the limited liability company is treated as an acquisition of voting securities, the two participating companies will not need to file additional Premerger Notification Forms for additional capital contributions. Finally, if the limited liability company is treated as a partnership, it is my understanding that a Premerger Notification Form need not be filed.
I would appreciate your opinion as to how we should file the Premerger Notification Form if we do indeed need to file. I very much appreciate your help and, as I indicated, time is of the essence.
Very truly yours,
(redacted)
Enclosures
(see pdf file)