[Code of Federal Regulations] [Title 31, Volume 3] [Revised as of July 1, 2005] From the U.S. Government Printing Office via GPO Access [CITE: 31CFR800.301] [Page 935-937] TITLE 31--MONEY AND FINANCE: TREASURY CHAPTER VIII--OFFICE OF INTERNATIONAL INVESTMENT, DEPARTMENT OF THE TREASURY PART 800_REGULATIONS PERTAINING TO MERGERS, ACQUISITIONS, AND TAKEOVERS BY FOREIGN PERSONS--Table of Contents Subpart C_Coverage Sec. 800.301 Transactions that are acquisitions under section 721. (a) Section 721 applies to acquisitions: (1) Proposed or pending on or after the effective date (2) By or with foreign persons (3) Which could result in foreign control of persons engaged in interstate commerce in the United States. (b) Transactions that are acquisitions under section 721 include, without limitation: (1) Proposed or completed acquisitions by or with foreign persons which could or did result in foreign control of a U.S. person, irrespective of the actual arrangements for control planned or in place for that particular acquisition. Example 1. Corporation A, a foreign person, proposes to purchase all the shares in Corporation X, which is organized in the United States and engages in interstate commerce in the United States. [[Page 936]] Under the applicable law, Corporation A will have the right to elect directors and appoint other primary officers of Corporation X, and those directors will have the right to reach decisions about the closing and relocation of particular production facilities, and the termination of contracts. They also will have the right to propose (for approval by Corporation A as a shareholder) the dissolution of Corporation X and the sale of its principal assets. For purposes of section 721, the proposed acquisition of Corporation X by Corporation A would result in control of a U.S. person (Corporation X) by a foreign person (Corporation A). Example 2. Same facts as in Example 1, except that Corporation A plans to retain the existing directors of Corporation X, all of whom are U.S. nationals. Although, under these plans, Corporation A may not in fact exercise control over Corporation X (because the directors as U.S. nationals may exercise that control), the acquisition of Corporation X by Corporation A still would result in foreign control over a U.S. person for purposes of section 721. (2) A proposed acquisition by or with a foreign person, which could result in foreign control of a U.S. person, including, without limitation, an offer to purchase all or a substantial portion of the securities of a U.S. person. Example. Corporation A, a foreign person makes an offer to purchase all the shares in Corporation X, a U.S. person. That acquisition is ``proposed'' and subject to section 721. (3) Proposed or completed acquisitions, even by entities organized in the United States, if those entities are ``foreign persons,'' and if those acquisitions could or did result in a different foreign interest controlling the U.S. person to be acquired. Example 1. Corporation X is organized and operates in the United States. Its shares are held by a foreign person. While Corporation X is a ``U.S. person,'' it is also a ``foreign person'' within the meaning of section 721, because control over it is or could be exercised by a foreign person. Its acquisition of a U.S. person is subject to section 721 because that acquisition could result in control by Corporation X (a ``foreign person'') of a U.S. person. Example 2. Same facts as Example 1, except that Corporation Y, a foreign person, seeks to acquire Corporation X from its existing shareholder. That proposed acquisition is subject to section 721 because it could result in control of Corporation X (in this context a ``U.S. person'') by a different foreign person (Corporation Y). (4) Proposed or completed acquisitions by or with foreign persons which involve acquisitions of businesses and could or did result in foreign control of businesses located in the United States. Example 1. Corporation A, a foreign person, proposes to buy a branch office business in the United States of Corporation X, which is a foreign person. For purposes of these regulations, the branch office business of Corporation X is a United States person to the extent of its business activities in the U.S., and the proposed acquisition of the business in question is subject to section 721. Example 2. Corporation A, a foreign person, buys a branch office business located entirely outside the United States of Corporation Y, which is incorporated in the United States. The branch office business of Corporation Y is not deemed to be a United States person, and the acquisition is not subject to section 721. Example 3. Corporation A, a foreign person, makes a start-up or ``greenfield'' investment in the United States. That investment involves such activities as separately arranging for the financing of and the construction of a plant to make a new product, buying supplies and inputs, hiring personnel, and purchasing the necessary technology. The investment may involve the acquisition of shares in a newly incorporated subsidiary. Corporation A will not have acquired the ``business'' of a U.S. person, and its greenfield investment is not subject to section 721. (5) Joint ventures in which a United States person and a foreign person enter into contractual or other similar arrangements, including agreements on the establishment of a new entity, but only if a United States person contributes an existing identifiable business in the United States and a foreign interest would gain control over that existing business by means of the joint venture. Example 1. Corporation A, a foreign person, and Corporation X, a United States person, form a separate corporation, JV Corp., to which Corporation X contributes an identifiable business in the United States. There is no foreign interest which does or could exercise control over Corporation X. Under the Articles of Incorporation of JV Corp., Corp. A through its shareholding in JV Corp. may elect a majority of the Board of Directors of JV Corp. The formation of JV Corp. could result in foreign control of a U.S. person and is an acquisition subject to section 721. Example 2. Same facts as in Example 1, except that Corporations A and X each own 50 percent of the shares of JV Corp. and, under [[Page 937]] the Articles of Incorporation of JV Corp. both A and X have veto power over all decisions by JV Corp. identified under Sec. 800.204(a) (1) through (5). The formation of JV Corp. is not an acquisition subject to section 721. Example 3. Corporation A, a foreign person, and Corporation X, a United States person, form a separate corporation, JV Corp., to which Corporation A contributes funding and managerial and technical personnel, while Corporation X contributes certain patents and equipment that do not under these circumstances constitute an identifiable business. The formation of JV Corp. is not an acquisition subject to section 721. [56 FR 58780, Nov. 21, 1991, as amended at 59 FR 27179, May 25, 1994]