The Federal Trade Commission has announced an amendment to its recently revised Formal Interpretation 15 concerning the reportability of limited liability company ("LLC") formations and acquisitions of interests by them. The amended Interpretation is effective July 1, 1999.
Under the amended Interpretation (published in the Federal Register on June 29, 1999):
1. The formation of an LLC is reportable if (1) two or more pre-existing, separately controlled businesses will be contributed, and (2) at least one of the members will control the LLC (i.e., have the right to 50% or more of the profits of the LLC or 50% of its assets upon dissolution).
2. The acquisition of an additional business by an existing LLC that results in a change in the membership interest percentage of at least one member of the LLC will be treated as the formation of a new LLC. Consequently, both the additional business and the business already in the existing LLC are deemed to be contributed to the formation of the new LLC. If the person who will control the new LLC acquires assets or voting securities of the additional business that it did not previously control, then the acquisition is potentially reportable.
3. The acquisition of an additional business by an existing LLC that does not result in a change in the membership interests of any of the LLC.s members is not analyzed as a formation of a new LLC. Instead, such an acquisition is treated as an acquisition by the LLC, or its ultimate parent entity or entities, and is potentially reportable.
4. Whether or not there is a change in the membership interests of the LLC.s members, the LLC.s acquisition of assets or voting securities not constituting a business is never treated as the formation of a new LLC. Instead, such an acquisition is analyzed as an assets or voting securities acquisition by the LLC, or its ultimate parent entity or entities, and is potentially reportable. Under the Interpretation, "business" means "assets that are operated . . . as a business undertaking in a particular location or to provide particular goods or services, even though those assets" may not constitute a separate legal entity.
Whether the transaction is a formation of an LLC or an acquisition of interests by an LLC, the size-of-the-person and size-of-the-transaction tests must also be satisfied for the transaction to be reportable.
The Interpretation is available on the FTC.s website, www.ftc.gov.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require and further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative.