Sales of Interests

Sales of Interests

April 01, 2005
SALES OF INTERESTS in many partnerships and limited liability companies that own US property will have to wait in the future at least 30 days after reports are filed with US antitrust officials before the sales can close.

The filings are called Hart-Scott-Rodino filings. Until now, sales of less than an entire partnership or limited liability company — for example, a sale of a 99% interest — could occur without such filings. However, the Federal Trade Commission amended its rules on February 23 to require filings in cases where less than the entire entity is sold as long as the purchaser will have “control” of the partnership or limited liability company after closing of the transaction. The FTC defines “control” as having the right to 50% or more of the profits of the entity or having the right to 50% or more of the assets of the entity upon dissolution.

The new rules apply to sales that close after April 7, 2005.

The Hart-Scott-Rodino Antitrust Act is a 1976 law that requires parties to acquisitions of voting securities or assets meeting certain size thresholds to file notice and observe a waiting period before closing the transaction. Filings must be made with both the Federal Trade Commission and the US Department of Justice. The waiting period of 30 days after filing before a sale can close is supposed to give antitrust officials at the two agencies time to assess whether the sale has unfavorable antitrust implications. Most cases present no antitrust implications, and the parties can ask that the waiting period be shortened. However, even where early termination of the waiting period is granted, the parties still end up waiting about 20 days. The waiting period does not start to run until both parties — the buyer and the seller — make filings.

A Hart-Scott-Rodino filing is required only in cases where the value of the assets or voting securities being acquired is at least $53.1 million. The amount is adjusted each year for inflation. This is the figure for sales during 2005. The dollar threshold takes into account what the buyer already owns as well as any new interest he is purchasing.

A filing is required not only when someone buys an interest in an existing partnership or limited liability company from someone else, but also when a new partnership or LLC is formed — and ownership interests are issued — in exchange for capital contributions. A party acquiring “control” of the new entity in such a case must make a filing. The new entity itself must also file.

Keith Martin