Question
August 1, 1995
BY HAND
Richard B. Smith, Esquire
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washington, D.C. 20580
Dear Dick:
I am writing to memorialize the advice you provided over the telephone on July 28 concerning the nonreportability under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the Act) and the implementing regulations of the following transaction:
A limited liability company (LLC) will be created under the Delaware Limited Liability Company Act. Persons (corporations) forming the LLC will contribute assets to the LLC in exchange for the LLCs equity interests. Equity interest holders will be denominated the LLCs Members.
The LLC will not have a governing body comparable to a corporate board of directors. Thus, there will be no outside directors, and no vote for directors by the Members. Instead, the LLC Agreement will indicate that the authority to manage the LLC will be retained by the Members. At any meeting of Members, a Member (acting through a director, officer, employee, or other representative of the Member) will be entitled to vote on any issue presented, with the weight of the representatives vote proportional to the Members equity interest.
The LLC Agreement will specify that the Members may establish one or more committees, including a management committee, that will have such powers as the Members may delegate. Each member will have the right to appoint one or more representatives to a committee. The committee representatives of a particular Member will have collective voting power in the committee proportional to the Members equity interest in the LLC.
The LLC Agreement will also specify that the Members (or a committee delegated this function) will designate officers of the LLC.
You advised that the above LLC formation transaction would not require any filings under the Act and the implementing regulations. You indicated that the Premerger Notification Office has determined that LLC formation transactions are only reportable (assuming satisfaction of applicable size tests) when the LLC is to be governed by a body comparable to a corporate board of directors elected by the LLCs Members, and such board includes one or more outside directors, i.e. persons who are not officers, directors or employees of a Member. The LLC referenced above will have neither a governing board elected by the Members, nor any outside directors on such a board. Thus, you concluded that formation of the LLC would not be reportable.
If this letter does not accurately describe the advice you provided concerning the nonreportability of the transaction discussed above, please call me as soon as possible.
As always, I thank you for your time and assistance.
Very truly yours,
(redacted)
cc: (redacted)