Although transactions involving not-for-profit entities can trigger premerger filing requirements under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR”), a transaction that results in the formation of a not-for-profit entity may not require a premerger filing. Specifically, 16 C.F.R. § 802.40 states that “[t]he formation of an entity is exempt from the requirements of [HSR] if the entity will be not-for-profit within the meaning of sections 501(c)(1)-(4), (6)-(15), (17)-(20) or (d) of the Internal Revenue Code.”
The Premerger Notification Office of the Federal Trade Commission has provided much guidance on when the not-for-profit exemption applies. Key to the analysis is an evaluation of control. Thus, if nonprofit A and nonprofit B create a new not-for-profit entity (“Newco”), A and B each receive the right to appoint exactly half of Newco’s board, and Newco gains no control over A and B, then the formation of Newco may be exempt from HSR filing requirements. Other arrangements where control of any of the parties is shifted would likely require an HSR filing.