Question
June 9, 1995
By Hand
Richard B. Smith, Esquire
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washing ton, D.C. 20580
Dear Dick:
I am writing to memorialize the advice you provided yesterday over the telephone concerning the appropriate analysis under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the Act) and the implementing regulations of the formation of a partnership and a limited liability company (LLC). In discussing the transactions outlined below, I asked you to assume that all applicable size tests were met and that no 16 C.F.R. 801.90 avoidance problems were presented.
First, I described a bona fide partnership formation transaction in which each of Persons A and B will contribute assets to the partnership and receive partnership interests in return. You advised, in conformity with a longstanding Premerger Notification Office informal interpretation, that such a partnership formation transaction, including the contribution of assets by each of A and B, would not be subject to the Acts reporting requirements.
Second, I described a bona fide LLC formation transaction in which each of persons A and B, both corporations, will contribute assets to the LLC and receive LLC ownership interests in return. The governing body of the LLC will be a board of managers or directors consisting of representatives of A and B, who are employees, officers, or directors of A and B, respectively.
You advised that the formation of such an LLC, including the contribution of assets by each of A and B, would not be subject to the Acts reporting requirements, because the LLCs ownership interests would not be deemed to constitute voting securities. You advised that the transaction would remain nonreportable even if the LLC had plans to hire an outside manager-employee, reporting to the governing board, who was not a director, officer or employee of A or B. However, you indicated that if A and B had plans to appoint such an outsider or outsiders to the managing board itself, then the LLC formation transaction would be reportable on the same basis that a corporation formation transaction would be reportable. The reason, you indicated, was that in such a circumstance, the LLCs ownership interests would be deemed to constitute voting securities.
If this letter does not accurately describe the advice you provided concerning the transactions 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)