• Proposed Changes to HSR Rules
  • June 2, 2004 | Authors: Stephen M. Quinlivan; Jeffrey L. Cotter
  • Law Firm: Leonard, Street and Deinard, [incorporation phrase format]Professional Association - Minneapolis Office
  • The Department of Justice and the Federal Trade Commission have recently proposed changes to the regulations issued pursuant to the Hart-Scott-Rodino Antitrust Improvements Act. The goal of the proposed changes is to cause partnerships, limited liability companies and other non-corporate entities to be treated more like corporate entities.

    Significant changes include:

    • Under the current rules, acquisition of a partnership, limited liability company or other non-corporate interest is not a reportable transaction, unless 100% of the entity's interests are acquired. Under the proposed regulations, acquisition of control of a partnership, limited liability company or other noncorporate entity will become a reportable transaction if the jurisdictional thresholds, also known as the "size-of-the-person" and "size-of-the-transaction" tests, are met. "Control" is defined as obtaining the right to 50% or more of the entity's profits or the right to 50% or more of the entity's assets upon liquidation.

    • Under current rule interpretations, formation of a partnership is not a reportable event, and under Formal Interpretation No. 15, formation of a limited liability company is reportable only in peculiar circumstances. Under the proposed rules, formation of a partnership, limited liability company or other non-corporate entity will become a reportable event if one person will control the entity and the jurisdictional thresholds are met. Special rules apply to the determination of the jurisdictional thresholds in this case. To determine if the "size-of-the-transaction" test is met, the acquiring person is considered to acquire a pro-rata portion of the newly formed entity's assets.

    The rules will also contain a number of conforming changes to implement these new proposals, as well as unrelated technical corrections. While the net result of the new rules will result in more filings, the rules will now be more analytically consistent among various types of entities, hopefully resulting in consistent interpretations.