– Treat as part of an 801.50 formation.
Tuesday, April 17, 2012 11:57 AM
Verne, B. Michael
JV Formation v. Acquisition
Ihave a question about the formation of an LLC Two parties have already enteredinto a memorandum of understanding pursuant to which they contemplate a joint venturebetween the two parties. Party A will form the joint venture as an LLCInitially Party A (or its subsidiaries) will own 100% of the LLC At the time offormation, Party A will contribute assets (including IP, factories, cash,working capital and other assets) to the LLC The value of the assets willexceed the size of transaction threshold.
Notsooner than 30 days later, Party B will purchase from Party A and the LLCinterests in the LLC such that Party A and Party B will each hold 50% of theLLC The parties have not yet determined the percentages that Party B willpurchase from Party A and from the LLC Party B will pay cash for its interestin the LLC The cash payment will exceed the size of transaction threshold.Party B will also contribute to the working capital of the LLC, will contributean IP license and any other assets agreed to by Party A and Party B. The valueof these other contributions has not yet been determined.
Iwant to confirm with you the appropriate way to analyze this transaction. Ibelieve that the initial formation and contribution will be treated as exemptunder 802.30 since Party A is contributing its assets to an LLC it controls.Then we need to look at the acquisition of LLC interests by Party B, and alsowhether the JV is acquiring assets from Party B that have a value in excess ofthe size of transaction threshold. Is this how you would look at thetransaction, or should we treat both transactions together as a formation underSection 801.50? The parties definitely call this a joint venture; its beenstructured as a two-step process for legitimate business reasons.