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The Federal Trade Commission wants to close a loophole used by hundreds of companies to avoid antitrust scrutiny for their deals. The agency proposed Tuesday to require businesses that buy controlling stakes in partnerships or limited liability corporations to first give government regulators a chance to determine if the deals would hurt competition. “This proposed rulemaking introduces a number of changes that attempt to reconcile, as far as is practical, the current disparate treatment of corporations, partnerships, limited liability companies and other types of unincorporated entities,” the FTC said in a statement. The public has until June 4 to comment on the proposal, but sources said the changes are likely to be adopted as issued because the FTC consulted heavily with the antitrust bar prior to issuing the revisions. Under current antitrust rules, companies are required to file a Hart-Scott-Rodino Act notification, which alerts the U.S. government to an acquisition, only if they are purchasing 100 percent of a partnership or LLC. That contrasts with acquisitions of corporations, where buyers must notify regulators of any deal valued at more than $50 million. The change would align the regulatory treatment of partnerships and LLCs with that of corporations. In practice, companies would have to file HSR notices any time they bought a stake in a partnership or LLC that is valued at more than $50 million and that gives the buyer the right to profits or assets when the entity dissolved. Under the proposal, for instance, one of three companies owning equal shares in a joint venture would first have to make an HSR filing before buying out a rival’s stake and taking control of the partnership. The same principle would apply to acquisitions of less than 100 percent of LLCs, which are becoming increasingly popular as a way to structure start-up enterprises. For example, a company may now buy 75 percent of a startup structured as an LLC without first notifying antitrust enforcers. The FTC proposal would subject that same transaction to HSR notification. The changes are sweeping, said Joel Mitnick, a partner at law firm Sidley, Austin, Brown & Wood in New York, in questioning the need to revamp a system he said has worked fine for decades. “We have had a presumption for 30 years that partnerships in general do not raise competitive concerns,” Mitnick said. “There ought to be a justification based on data to warrant expansion of the reporting rules. I have not seen that.” The FTC administers the HSR Act for itself and the Department of Justice. The FTC’s five commissioners unanimously voted to issue the proposal. By closing the loophole, the FTC also may be increasing the fees it collects on HSR notices. Companies pay a $45,000 filing fee for deals valued at $50 million to $100 million, $125,000 for those valued at $100 million to $500 million and $280,000 for deals worth more than $500 million. Kevin Grady, chairman of the American Bar Association’s antitrust section, said his organization plans to comment on the FTC proposal. “The issue will be the cost and benefits of this, and is it the kind of thing that makes sense,” he said. Copyright �2004 TDD, LLC. All rights reserved.

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