Covers definitions under Section 721 and related 
    regulations

• Shows text of pending proposed regulations

Proposed rule - 31 CFR 800.201 

• The term certification means a written statement signed by the chief executive officer or other duly authorized designee of a party to a transaction filing a notice or information, certifying that the notice or information filed:
  (a) fully complies with the requirements of section 721, the regulations in this part, and any agreement or condition entered into with the Committee or any member of the Committee, and
  (b) Is accurate and complete in all material respects, as it relates to:
  (1) The transaction, and
  (2) The party providing the certification, including its parents, subsidiaries, and any other related entities described in the notice or information. A sample certification may be found at the Committee's section of the Department of the Treasury Web site at http://www.treas.gov/ offices/international-affairs/cfius/index.shtml.

Official commentary

• 2008 proposal release
  Section 800.201. The term certification has been added as part of the implementation of a provision in FINSA stating that parties that file voluntary notices must certify the accuracy and completeness of their filings with CFIUS. This new requirement applies both to notices and to any follow-up information provided to CFIUS. The Staff Chairperson may reject at any time during a review or investigation a voluntary notice that does not include certifications that comply with the requirements of these regulations. An inaccurate or incomplete certification may give rise, in certain circumstances, to the imposition of penalties under section 800.801(a) and other applicable laws.

Statute - Section 721(a)(1)

• The terms 'Committee' and 'chairperson' mean the Committee on Foreign Investment in the United States and the chairperson thereof, respectively.
• See Section 721(a)(1)

Proposed rule -  31 CFR 800.202 

• The term Committee means the Committee on Foreign Investment in the United States. The Chairperson of the Committee is the Secretary of the Treasury. The Staff Chairperson of the Committee is the Department of the Treasury official so designated by the Secretary of the Treasury or by the Secretary's designee.

Current rule

• 800.205

Statute - Section 721(a)(2)

• The term 'control' has the meaning given to such term in regulations which the Committee shall prescribe.
• See Section 721(a)(2)

Proposed rule - 31 CFR 800.203

• (a) The term control means the power, direct or indirect, whether or not exercised, through the ownership of a majority or a dominant minority of the total outstanding voting interest in an entity, board representation, proxy voting, a special share, contractual arrangements, formal or informal arrangements to act in concert, or other means, to determine, direct, or decide important matters affecting an entity; in particular, but without limitation, to determine, direct, take, reach, or cause decisions regarding the following matters, or any other similarly important matters affecting an entity:
  (1) The sale, lease, mortgage, pledge, or other transfer of any of the tangible or intangible principal assets of the entity, whether or not in the ordinary course of business;
  (2) The reorganization, merger, or dissolution of the entity;
  (3) The closing, relocation, or substantial alteration of the production, operational, or research and development facilities of the entity;
  (4) Major expenditures or investments, issuances of equity or debt, or dividend payments by the entity, or approval of the operating budget of the entity;
  (5) The selection of new business lines or ventures that the entity will pursue;
  (6) The entry into, termination, or non-fulfillment by the entity of significant contracts;
  (7) The policies or procedures of the entity governing the treatment of non-public technical, financial, or other proprietary information of the entity;
  (8) The appointment or dismissal of officers or senior managers;
  (9) The appointment or dismissal of employees with access to sensitive technology or classified U.S. Government information; or
  (10) The amendment of the Articles of Incorporation, constituent agreement, or other organizational documents of the entity with respect to the matters described in paragraphs (a)(1) through (9) of this section.
• (b) In examining questions of control in situations where more than one foreign person has an ownership interest in an entity, consideration will be given to factors such as whether the foreign persons are related or have formal or informal arrangements to act in concert, whether they are agencies or instrumentalities of the national or subnational governments of a single foreign state, and whether a given foreign person and another person that has an ownership interest in the entity are both controlled by any of the national or subnational governments of a single foreign state.
• (c) The following minority shareholder protections shall not in themselves be deemed to confer control over an entity:
  (1) The power to prevent the sale or pledge of all or substantially all of the assets of an entity;
  (2) The power to prevent an entity from entering into contracts with majority investors or their affiliates;
  (3) The power to prevent an entity from guaranteeing the obligations of majority investors or their affiliates;
  (4) The power to purchase additional shares to prevent the dilution of an investor's pro rata interest in an entity in the event that the entity issues additional interests; or
  (5) The power to prevent the amendment of the Articles of Incorporation, constituent agreement, or other organizational documents of an entity with respect to the matters described in paragraphs (c)(1) through (4) of this section.
• (d) The Committee will consider, on a case-by-case basis, whether minority shareholder protections other than those listed in paragraph (c) of this section do not confer control over an entity.

• Example 1. Corporation A is a U.S. business. A U.S. investor owns 50 percent of the voting interest in Corporation A, and the remaining voting interest is owned in equal shares by five unrelated foreign investors. The foreign investors jointly financed their investment in Corporation A and vote as a single block on matters affecting Corporation A. The foreign investors have an informal arrangement to act in concert with regard to Corporation A, and, as a result, the foreign investors control Corporation A.
• Example 2. Same facts as in Example 1 with regard to the composition of Corporation A's shareholders. The foreign investors in Corporation A have no contractual or other commitments to act in concert, and have no informal arrangements to do so. Assuming no other relevant facts, the foreign investors do not control Corporation A.
• Example 3. Corporation A, a foreign person, is a private equity fund that routinely acquires substantial interests in companies and manages them for a period of time. Corporation B is a U.S. business. In addition to its acquisition of seven percent of Corporation B's voting shares, Corporation A acquires the right to terminate significant contracts of Corporation B. Corporation A controls Corporation B.
• Example 4. Corporation A, a foreign person, is acquiring a nine percent interest in the shares of Corporation B, a U.S. business. As part of the transaction, Corporation A is also acquiring certain veto rights that determine important matters affecting Corporation B, including the right to veto the dismissal of senior executives of Corporation B. Corporation A controls Corporation B.
• Example 5. Corporation A, a foreign person, acquires an 11 percent interest in the shares of Corporation B, a U.S. business. Under a minority shareholder protection agreement, Corporation A receives the right to participate pro rata in future share issuances to prevent dilution of its percentage interest. Corporation A receives no other positive or negative rights with respect to Corporation B. Assuming no other relevant facts, Corporation A does not control Corporation B.

• Note to Sec. 800.203: See Sec. 800.302(c) regarding the Committee's treatment of cases where a foreign person acquires 10 percent or less of the outstanding voting interests in a U.S. business solely for the purpose of investment.

Current rule

• 800.204

Official commentary

• Proposal release

• Proposal release
• FINSA does not define "control," but rather requires that CFIUS prescribe a definition by regulation. (See FINSA, Pub. L. 110-49, section 2, adding Sec. 721(a)(2).) "Control" is and always has been a key threshold concept in section 721, as the authority provided under that section, from the authority to review or investigate a notified transaction to the authority of the President to take action to suspend or prohibit a transaction, is predicated on the existence of foreign control of a person engaged in interstate commerce in the United States. This focus on control suggests a fundamental congressional judgment that national security risks are potentially highest in transactions that entail the acquisition of control of an entity operating in the United States. Indeed, Congress made clear in the 1988 Conference Report that accompanied the original Exon-Florio provision that "the Conferees in no way intend to impose barriers to foreign investment. Section 721 is not intended to authorize investigations on investments that could not result in foreign control of persons engaged in interstate commerce." (See H.R. Rep. No. 100-576 at 926.) Nothing in FINSA or its legislative history suggests any departure from this focus on control. Indeed, FINSA introduces the new term "covered transaction," which, as discussed above, incorporates the concept of control in its definition. The proposed regulations adopt the long-standing approach of defining "control" in functional terms as the ability to exercise certain powers over important matters affecting a business. Specifically, "control" is defined as the "power, direct or indirect, whether or not exercised, through the ownership of a majority or a dominant minority of the total outstanding voting interest in an entity, board representation, proxy voting, a special share, contractual arrangements, formal or informal arrangements to act in concert, or other means, to determine, direct, or decide important matters affecting an entity; in particular, but without limitation, to determine, direct, take, reach, or cause decisions regarding * * * important matters affecting an entity[.]" (See Sec. 800.203(a).) Two points should be emphasized concerning this definition. First, it eschews bright lines. Consistent with the existing regulations, control is not defined in terms of a specified percentage of shares or numbers of board seats. Although share holding and board seats are relevant to a control analysis, neither factor on its own is necessarily determinative. Instead, all relevant factors are considered together in light of their potential impact on a foreign person's ability to determine direct, or decide important matters affecting a company. Second, echoing the congressional views expressed in the conference report accompanying the original legislation in 1988, the focus of the statute and therefore these regulations is control. Even acknowledging the considerable flexibility necessarily inherent in a national security regulation, the statutory standard is not satisfied by anything less than control. Acquisition of influence falling short of the definition of control over a U.S. business is not sufficient to bring a transaction under section 721. In light of the significance of the concept of control to this regulatory framework, control appears in several different places throughout the regulations, both in those regulations that define the nature of the acquirer and those that define the transaction itself. For example, control is a key concept in the definitions of "foreign person" and "foreign government-controlled transaction." (See §§ 800.216 and 800.214, respectively.) A foreign person is any foreign national (i.e., a natural person who is a citizen of another country), foreign government, or foreign entity, or any "entity over which control is exercised or exercisable by a foreign national, foreign government or foreign entity." A foreign government-controlled transaction is one that "could result in the control of a U.S. business by a foreign government or a person controlled by or acting on behalf of a foreign government." Similarly, "covered transaction" is defined in these proposed regulations as "any transaction that is proposed or pending after the effective date [i.e., August 23, 1988] by or with any foreign person, which could result in control of any person engaged in interstate commerce in the United States." Conversely, transactions that will not result in foreign control over a person engaged in interstate commerce in the United States are not subject to section 721. Thus, a start-up or "greenfield" investment is not subject to section 721. (See Sec. 800.301(c), example 3.) Moreover, as noted below, a foreign person does not control an entity if it holds 10 percent or less of the voting interest in the entity and it holds that interest "solely for the purpose of investment," as that term is defined in Sec. 800.223. (See Sec. 800.302(c).) This rule would not apply if only the first prong is satisfied. For example, a transaction involving a foreign person with an interest of nine percent in a U.S. business who has bargained for rights to determine, direct, take, reach, or cause decisions regarding important matters affecting that business, would be a covered transaction. Thus, the regulations do not provide, and never have provided, an exemption based solely on whether an investment is 10 percent or less in a U.S. business. Section 800.203 lays out the basic definition of "control," provides an exemplary list of matters that are deemed to be important, states that CFIUS will consider certain relationships between persons in evaluating whether an entity is considered to be controlled by a foreign person, and identifies minority shareholder protections that are not considered in themselves to confer control over an entity. The regulations add a number of examples to provide greater clarity on the application of this definition.
• Section 800.203. The definition of control has been clarified and refined to remove unnecessary wording, but is substantively similar to the prior definition. The remaining changes are generally intended to clarify that control can be exercised in a number of ways, both affirmatively and, in some cases, negatively. At the same time, the definition recognizes that certain types of negative rights that are intended only to protect the investment-backed expectations of minority shareholders, and that do not affect strategic decisions on business policy or day-to-day management of an entity or other important matters affecting the entity, do not constitute control. The focus of CFIUS's analysis of whether a particular transaction could result in the acquisition of foreign control is on the ability of a foreign person to determine, direct, or decide important matters affecting a U.S. business, including to determine, direct, take, reach, or cause decisions regarding important matters affecting the U.S. business. Numerous examples have been added to illustrate the operation of these principles.  

Proposed rule - 31 CFR 800.204

• The term conversion means the exercise of a right inherent in the ownership or holding of particular financial instruments to exchange any such instruments for voting instruments.  

Current rule

• 800.205

Proposed rule - 31 CFR 800.205 

• The term convertible voting instrument means a financial instrument that currently does not entitle its owner or holder to voting rights but is convertible into a voting instrument.  

Current rule

• 800.206 - Convertible voting security

Basic definition of covered transaction is provided by statute and regulation

• Section 721(a)(3) and Rule 800.206

• Which are covered immediately below

Other regulations affect the scope of the basic definition

• For comprehensive coverage, go to Covered Transactions

Statute - Section 721(a)(3)

• The term 'covered transaction' means any merger, acquisition, or takeover that is proposed or pending after August 23, 1988, by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States.
• See Section 721(a)(3)

Proposed rule - 31 CFR 800.206 

• The term covered transaction means any transaction that is proposed or pending after the effective date by or with any foreign person, which could result in control of a U.S. business by a foreign person.

Official commentary

• Proposal release
  FINSA introduced the term "covered transaction" to identify the types of transactions that are subject to review and investigation by CFIUS. The statutory definition of covered transaction maintains the scope of section 721 as pertaining to any merger, acquisition, or takeover by or with a foreign person which could result in foreign control of any person engaged in interstate commerce in the United States. These proposed regulations further clarify the meaning of the term "covered transaction" (see Sec. 800.206) by specifying the scope of important elements of the term, including "transaction," "control," "U.S. business," and "foreign person." The definitions and clarification of these terms appear in Subpart B (Definitions) and in Subpart C (Coverage).

Statute - Section 721(a)(6)

• The term 'critical infrastructure' means, subject to rules issued under this section, systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security.
• See Section 721(a)(6)

Proposed rule -  31 CFR 800.207 

• The term critical infrastructure means, in the context of a particular covered transaction, systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of the particular systems or assets of the entity over which control is acquired pursuant to that covered transaction would have a debilitating impact on national security.  

Official commentary

• Proposal release
  Section 800.207. In defining critical infrastructure, the proposed regulations state that a transaction involves critical infrastructure where the incapacity or destruction of the particular assets at issue in the particular transaction under review would have a debilitating impact on national security.

Statute - Section 721(a)(7)

• The term 'critical technologies' means critical technology, critical components, or critical technology items essential to national defense, identified pursuant to this section, subject to regulations issued at the direction of the President, in accordance with subsection (h).
• See Section 721(a)(7)

Proposed rule - 31 CFR 800.208

• The term critical technologies means:
  
  (a) Defense articles or defense services covered by the United States Munitions List (USML), which is set forth in the International Traffic in Arms Regulations (ITAR) (22 CFR parts 120-130);
  
  (b) Those items specified on the Commerce Control List (CCL) set forth in Supplement No. 1 to part 774 of the Export Administration Regulations (EAR) (15 CFR parts 730-774) that are controlled pursuant to multilateral regimes (i.e., for reasons of national security, chemical and biological weapons proliferation, nuclear nonproliferation, or missile technology), as well as those that are controlled for reasons of regional stability or surreptitious listening;
  
  (c) Specially designed and prepared nuclear equipment, parts and components, materials software and technology specified in the Assistance to Foreign Energy Activities regulations (10 CFR part 810), and nuclear facilities, equipment, and material specified in the Export and Import of Nuclear Equipment and Materials regulations (10 CFR part 110); and
  
  (d) Select agents and toxins specified in the Export and Import of Select Agents and Toxins regulations (7 CFR part 331, 9 CFR part 121, and 42 CFR part 73).
  

Official commentary

• Proposal release
  Section 800.208. FINSA requires that regulations implementing section 721 include a definition of critical technologies. The proposed regulations define critical technologies with reference to existing regulatory regimes that deal with the trade or handling of sensitive goods, technology, and services. Section 800.402(c)(4) requires voluntary notices to identify, among other things, any critical technologies produced or traded by the U.S. business that is the subject of the covered transaction.  

Proposed rule - 31 CFR 800.209 

• (a) The term duly authorized designee means:
  (1) In the case of a partnership, any general partner thereof;
  (2) In the case of a corporation, any officer or director thereof;
  (3) In the case of an entity lacking officers, directors, or partners, any individual within the organization exercising similar executive functions; and
  (4) In the case of an individual, such individual.  
• (b) In each case described in paragraphs (a)(1) through (a)(4) of this section, such designee must possess actual authority to make the relevant certification on behalf of the person filing a notice or information.  

Official commentary

• Proposal release
• Section 800.209. This section defines duly authorized designee, which the definition of certification in section 800.201 uses to identify additional persons besides the chief executive officer who may complete the certifications required by the regulations. This definition makes clear that certifications must come from specified knowledgeable, high-level individuals who have the authority to bind an organization. CFIUS will not accept a certification signed only by outside counsel.  

Proposed rule - 31 CFR 800.210 

• The term effective date means August 23, 1988, the date section 721 became effective.

Current rule

• 800.207

Proposed rule - 31 CFR 800.211

• The term entity means any branch, partnership, group or sub-group, association, estate, trust, corporation or division of a corporation, or organization (whether or not organized under the laws of any State); assets operated by any one of the foregoing as a business undertaking in a particular location or for particular products or services, even though those assets may not be organized as a separate legal entity; and any government (including a foreign national or subnational government, the United States Government, a subnational government within the United States, and any agency, corporation, financial institution, or other entity or instrumentality thereof, including a government sponsored agency).  

Current rule

• 800.209

Official commentary

• Proposal release
• Section 800.211. The term entity encompasses the range of persons, other than natural persons, that can comprise a "person" for purposes of section 721. An entity need not have a distinct legal personality, as the term includes branches, partnerships, groups or sub-groups, associations, estates, trusts, corporations or divisions of corporations, organizations, governments, or assets operated by any one of the foregoing as a business undertaking in a particular location or for particular products or services, regardless of whether they are organized as a legal matter. Accordingly, an operating unit or sub-unit of a business--particularly one that includes the business' production facilities, customer or vendor relationships, technology, staff, know- how or other tangible or intangible assets--may be an entity, even if that operating unit or sub-unit is not legally organized.  

Proposed rule - 31 CFR 800.212 

• The term foreign entity means:
  (a) A public company organized under the laws of a foreign state whose equity securities are primarily traded on one or more foreign exchanges; or
  (b) Any other entity organized under the laws of a foreign state in which foreign nationals hold, directly or indirectly, at least 50 percent of the outstanding ownership interest in an entity.  

Official commentary

• Proposal release
• Section 800.212. A new term, foreign entity, has been added to refer to entities organized outside the United States that CFIUS considers to be foreign persons because of their substantial foreign ownership, even though ownership is widely dispersed among different foreign persons and no single foreign person may control the entity. Section 800.216. The definition of foreign person has been expanded to include "foreign entity." In addition, a number of examples have been added to provide further guidance.  

Proposed rule - 31 CFR 800.213 

• The term foreign government means any government or body exercising governmental functions, other than the government of the United States, a State of the United States, or a political subdivision of the United States or a State. The term includes, but is not limited to, national and subnational governments, including their respective departments, agencies, and instrumentalities, as well as individuals acting as non- elected heads of state with governmental responsibilities.

Current rule

• 800.210
  
  ________________
• By including "individuals acting as non-elected heads of state with governmental responsibilities", the proposed rules would cover sovereign wealth funds that invest the assets of monarchs or rulers who have not been elected to their roles

Statute - Section 721(a)(4)

• The term 'foreign government-controlled transaction' means any covered transaction that could result in the control of any person engaged in interstate commerce in the United States by a foreign government or an entity controlled by or acting on behalf of a foreign government.
• See Section 721(a)(4)

Proposed rule - 31 CFR 800.214 

• The term foreign government-controlled transaction means any covered transaction that could result in control of a U.S. business by a foreign government or a person controlled by or acting on behalf of a foreign government.
  
  ______________

Cross- reference

• Foreign government-controlled transactions are subject to a formal 45-day investigation, not just a 30-day review, unless the Secretary of the Treasury and the head of the lead agency assigned to the specific CFIUS review jointly conclude that the transaction will not impair US national security
  See _____

Proposed rule - 31 CFR 800.215 

• The term foreign government-controlled transaction means any covered transaction that could result in control of a U.S. business by a foreign government or a person controlled by or acting on behalf of a foreign government.

Current rule

• 800.212

Proposed rule - 31 CFR 800.216 

• The term foreign person means:
  (a) Any foreign national, foreign government, or foreign entity; or
  (b) Any entity over which control is exercised or exercisable by a foreign national, foreign government, or foreign entity.

• Example 1. Corporation A is organized under the laws of a foreign state and is only engaged in business outside the United States. All of its shares are held by Corporation X, which controls Corporation A. Corporation X is organized in the United States, and is wholly owned and controlled by U.S. nationals. Assuming no other relevant facts, Corporation A, although organized and only operating outside the United States, is not a foreign person.
• Example 2. Same facts as in the first sentence of Example 1. The foreign state under whose laws Corporation A is organized exercises control over Corporation A, through government interveners. Corporation A is a foreign person.
• Example 3. Corporation A is organized in the United States, is engaged in interstate commerce in the United States, and is controlled by Corporation X. Corporation X is organized under the laws of a foreign state, and 50 percent of its shares are held by foreign nationals and 50 percent of its shares are held by U.S. nationals. Both Corporation A and Corporation X are foreign persons. Corporation A is also a U.S. business.
• Example 4. Corporation A is organized under the laws of a foreign state and is owned and controlled by a foreign national. Through a branch, Corporation A engages in interstate commerce in the United States. Corporation A (including its branch) is a foreign person. The branch also is a U.S. business.
• Example 5. Corporation A is a corporation organized under the laws of a foreign state. Forty-five percent of the voting interests in Corporation A are owned in equal shares by numerous unrelated foreign investors, none of whom has control. The foreign investors have no formal or informal arrangement, with regard to Corporation A, to act in concert with any other holder of voting interests in Corporation A. The remainder of the voting interests in Corporation A is held by U.S. investors. Assuming no other relevant facts, Corporation A is not a foreign person.
• Example 6. Same facts as Example 5, except that foreign investors own 55 percent of the voting interests in Corporation A. Assuming no other relevant facts, Corporation A is a foreign entity and, therefore, a foreign person.  

Current rule

• 800.213

Official commentary

• Proposal release
• Foreign Person The term "foreign person" is defined in section 800.216. The only significant revision that the proposed regulations make to the definition of foreign person is to introduce the new concept of a "foreign entity," further discussed in the section-by-section analysis below (see Sec. 800.212), and to specify that an entity that qualifies as a foreign entity will be deemed a foreign person.
• Section 800.216. The definition of foreign person has been expanded to include "foreign entity." In addition, a number of examples have been added to provide further guidance.

• 
  ______________

Cross- reference

• Foreign government-controlled transactions are subject to a formal 45-day investigation, not just a 30-day review, unless the Secretary of the Treasury and the head of the lead agency assigned to the specific CFIUS review jointly conclude that the transaction will not impair US national security
  See _____

Proposed rule - 31 CFR 800.217 

• The terms hold(s) and holding mean legal or beneficial ownership, whether direct or indirect, through fiduciaries, agents, or other means.

Current rule

• 800.214

Statute - Section 721(a)(8)

• The term 'lead agency' means the agency, or agencies, designated as the lead agency or agencies pursuant to subsection (k)(5) for the review of a transaction.
• See Section 721(a)(8)

Proposed rule - 31 CFR 800.218 

• ___????

Official commentary

• Proposal release
• Section 800.218. The definition of lead agency specifies, pursuant to FINSA and Executive Order 11858, as amended by Executive Order 13456, that the Department of the Treasury may designate an agency as being responsible for all or any portion of a matter under section 721, including the review, investigation, and negotiation or monitoring of mitigation agreements and conditions. The Department of the Treasury may appoint more than one lead agency for a single transaction.  

Statute: Section 721(a)(5)

• "Clarification: The term 'national security' shall be construed so as to include those issues relating to 'homeland security', including its application to critical infrastructure."
• See Section 721(a)(5)

Statute: Section 721(f)  "Factors to be considered"

• Specifies criteria for CFIUS review, which ____
• See _______

Proposed rule -  31 CFR 800.219

• (a) The term parent means a person who or which directly or indirectly:
  (1) Holds or will hold at least 50 percent of the outstanding voting interest in an entity; or
  (2) Holds or will hold the right to at least 50 percent of the profits of an entity, or has or will have the right in the event of the dissolution to at least 50 percent of the assets of that entity.
• (b) Any entity that meets the conditions of paragraphs (a)(1) or (2) of this section with respect to another entity (i.e., an intermediate parent) is also a parent of any other entity of which the intermediate parent is a parent.

• Example 1. Corporation P holds 50 percent of the voting securities of Corporations R and S. Corporation R holds 40 percent of the voting securities of Corporation X; Corporation S holds 50 percent of the voting securities of Corporation Y, which in turn holds 50 percent of the voting securities of Corporation Z. Corporation P is a parent of Corporations R, S, Y and Z, but not of Corporation X. Corporation S is a parent of Corporations Y and Z, and Corporation Y is a parent of Corporation Z.
• Example 2. Corporation A holds warrants, exercisable at its sole discretion, which when exercised will entitle it to vote 50 percent of the outstanding shares of Corporation B. Corporation A is a parent of Corporation B.

Official commentary

• Proposal release
• Section 800.219. The definition of the term parent includes immediate, intermediate, and ultimate parents of an entity.  

Proposed rule -  31 CFR 800.220

• The terms party to a transaction and parties to a transaction mean:
  (a) In the case of an acquisition of an ownership interest in an entity, the person acquiring the ownership interest, and the person from which such ownership interest is acquired, without regard to any person providing brokerage or underwriting services for the transaction;
  (b) In the case of a merger, the surviving entity, and the entity or entities that are merged into that entity as a result of the transaction;
  (c) In the case of a consolidation, the entities being consolidated, and the new consolidated entity;
  (d) In the case of a proxy solicitation, the person soliciting proxies, and the person who issued the voting interest;
  (e) In the case of the conversion of convertible voting instruments, the issuer and the person holding the convertible voting instruments; and
  (f) In the case of any other type of transaction, any person who is in a role comparable to that of a person described in paragraphs (a) through (e) of this section.

Proposed rule - 31 CFR 800.221 

• The term person means any individual or entity.

Proposed rule - 31 CFR 800.222 

• The term section 721 means section 721 of title VII of the Defense Production Act of 1950, 50 U.S.C. App. 2170, as added by section 5021 of the Omnibus Trade and Competitiveness Act of 1988, Pub. L. 100-418, 102 Stat. 1107, and as amended by Pub. L. 102-484, 106 Stat. 2463, and the Foreign Investment and National Security Act of 2007, Public Law 110-49, 121 Stat. 246.
  _________
  See Section 721

Proposed rule - 31 CFR 800.223 

• Ownership interests are held or acquired "solely for the purpose of investment" if the person holding or acquiring such interests has no plans or intention of exercising control, does not possess or develop any purpose other than investment, and does not take any action inconsistent with acquiring or holding such interests solely for the purpose of investment. (See Sec. 800.302(c).)

Proposed rule - 31 CFR 800.224 

• The term transaction means a proposed or consummated merger, acquisition, or takeover. It includes:
  (a) The acquisition of an ownership interest in an entity.
  (b) The acquisition or conversion of convertible voting instruments of an entity.
  (c) The acquisition of proxies from holders of a voting interest in an entity.
  (d) A merger or consolidation.
  (e) The formation of a joint venture.
  (f) A long-term lease under which a lessee makes substantially all business decisions concerning the operation of a leased entity, as if it were the owner.

• Example. Corporation A, a foreign person, signs a concession agreement to operate the toll road business of Corporation B, a U.S. business, for 99 years. However, Corporation B is required under the agreement to perform safety and security functions with respect to the business and to monitor compliance by Corporation A with the operating requirements of the agreement on an ongoing basis. Corporation B may terminate the agreement or impose other penalties for breach of these operating requirements. Assuming no other relevant facts, this is not a transaction.  

Official commentary

• Proposal release
• Transaction The term "transaction" is defined in section 800.224, and implements the statutory requirement that a covered transaction be one that involves a "merger, acquisition, or takeover" that is proposed or consummated. This definition continues to exclude greenfield investment, and includes only a very limited type of long-term lease.
• Proposal release
• Section 800.224. The term transaction replaces the term acquisition in order to harmonize the terminology of the regulations with that of the statute. In addition to general clarifications to the definition, the proposed regulations add certain joint ventures and long-term leases as types of transactions. The current regulations already provide that joint ventures involving the contribution of a U.S. person could be covered transactions, though joint ventures are not actually listed in the definition of acquisition. Long-term leases are covered when, because of the terms of the lease and the extent of the lessee's authority over the U.S. business, the lease is effectively a transaction for purposes of section 721. A "transaction" is only a "covered transaction" if the other elements of the definition of "covered transaction'" are also present.  

Proposed rule - 31 CFR 800.225 

• The term United States or U.S. means the United States of America, the States of the United States, the District of Columbia, and any commonwealth, territory, dependency, or possession of the United States, or any subdivision of the foregoing, and includes the Outer Continental Shelf, as defined in section 2(a) of the Outer Continental Shelf Lands Act (43 U.S.C. 1131(a)). For purposes of these regulations and their examples, an entity organized under the laws of the United States of America, one of the States, the District of Columbia, or a commonwealth, territory, dependency or possession of the United States, is an entity organized "in the United States."

Proposed rule - 31 CFR 800.226

• The term U.S. national means a citizen of the United States or an individual who, although not a citizen of the United States, owes permanent allegiance to the United States.

Proposed rule - 31 CFR 800.227

• The term U.S. business means any entity, irrespective of the nationality of the persons that control it, engaged in interstate commerce in the United States, but only to the extent of its activities in interstate commerce.

• Example 1. Corporation A is organized under the laws of a foreign state and is wholly owned and controlled by a foreign national. It engages in interstate commerce in the United States through a branch or subsidiary. Its branch or subsidiary is a U.S. business. Each is also a foreign person for purposes of acquiring a U.S. business.
• Example 2. Same facts as in the first sentence of Example 1. Corporation A, however, does not have a branch office, subsidiary or fixed place of business in the United States. It exports and licenses technology to an unrelated company in the United States. Assuming no other relevant facts, Corporation A is not a U.S. business.
• Example 3. Corporation A, a company organized under the laws of a foreign state, is wholly owned and controlled by Corporation X. Corporation X is organized in the United States and is wholly owned and controlled by U.S. nationals. Corporation A does not have a branch office, subsidiary, or fixed place of business in the United States. It exports goods to Corporation X and to unrelated companies in the United States. Assuming no other relevant facts, Corporation A is not a U.S. business.  

Official commentary

• Proposal release
• U.S. Business Section 800.227 defines "U.S. business," which is included in the definition of "covered transaction," to mean any entity engaged in interstate commerce in the United States, but only to the extent of its activities in interstate commerce in the United States. In determining whether a person is a U.S. business, CFIUS will consider whether the entity (which is defined to include any branch, partnership, group or sub-group, association, estate, trust, corporation or division of a corporation, organization, assets operated by any one of the foregoing as a business undertaking in a particular location or for particular products or services, even though those assets may not be organized as a separate legal entity, or government) that is the subject of the acquisition is engaged in interstate commerce.
• Proposal release
• Section 800.227. The term U.S. business replaces and expands upon the term United States person, in the manner and for the reasons described above.  

Proposed rule - 31 CFR 800.228

• The term voting interests means any interests in an entity that entitle the owner or holder thereof to vote for the election of directors of the entity (or, with respect to unincorporated entities, individuals exercising similar functions) or to vote on other matters affecting the entity.

CFIUS / Exon-Florio