1206011 Informal Interpretation

Michael Verne

– Agree.  K Walsh concurs.





Tuesday, June 05, 2012 1:13 PM


Verne, B. Michael




Iam writing to ask if you could confirm that our conclusion is correct as to thereporting obligations of the parties in the joint venture formation describedbelow:

Transaction. Pursuant to a definitive agreement,(i) Company A will sell some of its assets to Company B for $100 million, and(ii) Company A and Company B will contribute assets (including the assetsCompany B purchased from Company A to a newly formed limited liability company("Newco"). As result of the transaction, Company A will own 33.3% ofNewco and Company 8 will own 66.7% of Newco. The sale of assets by Company A toCompany 8 is an integral part of the formation of Newco and both the sale andcontribution components of the transaction are conditioned on one another.

RelevantRules. 16 C.F.R.801.50(a) provides that "[i]n the formation of an unincorporated entity... even though the persons contributing to the formation of the unincorporatedentity and the unincorporated entity itself may, in the formation transaction,be both acquiring and acquired persons within the meaning of 801.2, thecontributors shall be deemed acquiring persons only and the unincorporatedentity shall be deemed the acquired person only." 16 C.F.R. 801.50(b)provides that in the formation of an unincorporated entity, a person is subjectto the notification requirements of the Act only if it acquires"control" of the newly formed entity and the jurisdictional criteriaof the Act are met.

"Control"of an unincorporated entity is defined in 16 C.F.R. 801.1(b)(1)(ii) as"having the right to 50 percent or more of the profits of the entity, orhaving the right in the event of dissolution to 50 percent or more of theassets of the entity."

16C.F.R. 802.41 provides that whenever a person is subject to the requirements ofthe Act under 16 C.F.R. 801.50, "the new entity need not file thenotification required by the Act."


1. Company B will be subject to therequirements of the Act in connection with the formation of Newco since it willbe acquiring control of Newco and the jurisdictional thresholds of the Act willbe satisfied. In that transaction, Newco, as acquired person, will not berequired to file.

2. The sale of assets by Company A toCompany B will not be separately reportable since it is part of the formationof Newco and in a formation transaction Company A, as a contributor to Newcocannot be an acquired person and Company B is deemed an acquiring person onlywith respect to its acquisition of interests in Newco. In addition, the sale ofassets by Company A to Company B is an intermediate step in the formationtransaction and can be disregarded since the final step (B's acquisition of acontrolling interest in Newco) is reportable.

Pleaseconfirm that our analysis is correct.

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