Antitrust laws are designed to ensure free competition in the U.S. marketplace by regulating how companies conduct business. Antitrust law forbids practices that suppress free competition, such as monopolies, lockup agreements, certain types of mergers, and price-fixing.
What Are Lockup Agreements?
Lockup agreements prohibit company insiders from selling their shares for a specific time. This causes the shares to be “locked up.” Before a company makes its initial public offering, the company and its backer normally sign a lockup agreement to guarantee that shares owned by these insiders aren’t offered too soon after the initial public offering.
What Terms Might Be Included in a Lockup Agreement?
The terms vary, but the standard agreement usually contains a “no-sell clause” for the first 180 days. These agreements can limit other things, such as the number of shares an insider can sell over a specified amount of time. The backer or underwriter generally determines the terms.
Does Antitrust Law Require Lockup Agreements?
Some states do require companies to have them. Federal law requires only that if such agreements exist within the company, the terms should be disclosed in the company’s registration documents.
What Is a Business Merger?
Generally speaking, a “business merger” may be defined as a transaction when one company acquires another company to join the two businesses together and establish a brand new company. This concept is often conflated with a specific type of business merger called a “merger,” which involves two entirely different corporations combining to form a single unified corporation.
When a merger involves the joining of two corporations, the separate forms of these entities will dissolve each of their respective assets and cease to operate. Any remaining liabilities may carry over into the newly established corporate entity. While this may sound similar to a formal business merger, the simplified term “merger” only applies to corporate entities.
Some other examples of business mergers that one may encounter under basic commercial, business, and antitrust laws include the following:
- Partnerships: A partnership is a business co-owned by a group of individuals. Partnerships are primarily formed in one of two ways: either as a general partnership or a limited partnership. Regardless of the type of partnership formed, a partnership business structure is legally different from two merged corporations because a partnership is not a single entity but rather a group of persons working towards a common business goal.
- Joint ventures: A joint venture is when two businesses enter into a contract to work on a specific project to generate revenue for both companies. Unlike a merger, a joint venture serves as a temporary solution to accomplish a specific business goal. In contrast, a merger will join the two corporate entities to form a new corporation, which can last as long as the parties desire.
- Takeovers: A takeover is when one company agrees to buy another company. The difference between a takeover transaction and a merger is that no new company is formed in a takeover. Rather, the bought company will still exist, but it will be operated under the board’s guidance of the company that bought it.
- Strategic alliances: A strategic alliance is when two businesses link up to form a partnership to pursue an ongoing mission, such as purchasing a particular product to reduce costs for both companies or making a product that both companies will benefit from. The distinguishing characteristic between this type of business merger and a merger between two corporations is that the businesses within this partnership will remain as two separate entities.
In addition to the miscellaneous laws and legal procedures required for business mergers, the parties to a business merger will also need to make sure that the types of business structures trying to merge do not have any particular rules attached to them, or else the merger may fail.
For example, suppose you are a limited liability company (“LLC”) member, and you want to merge with a C corporation. In that case, you should find out all of the advantages and disadvantages associated with C corporations. Otherwise, you may be surprised when it comes time to pay taxes and discover that you will now be forced to pay taxes as both a corporation and an individual who can be held personally liable. Such taxes are not imposed under an LLC.
Finally, business mergers’ antitrust laws can often be complicated and confusing. Thus, you may consider hiring a local business attorney or antitrust attorney to oversee the business merger process. The parties to a business merger should retain their separate counsel. This is so that each side’s interests will be represented when it comes to negotiating and drafting the final terms of their contract.
Further, a business attorney can recommend the best ways for you to achieve your business goals. This legal advice can be beneficial for someone who does not understand the intricacies of all the available business models.
How Do Antitrust Laws Apply to Business Practices?
Much of the antitrust law is found in the Sherman Act. This federal statute outlaws “every contract, combination, or conspiracy in restraint of trade” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.”
Nevertheless, the Supreme Court decided that the Sherman Act does not prohibit every restraint on trade, but only those that are unreasonable. Unreasonable restraints of trade include:
- Compelling or forcing someone to quit doing business or change their business so they won’t compete in the market.
- Deciding to fix prices to force other competitors out of business.
- Creating a monopoly.
- Making non-compete clauses or other contract provisions to keep another out of business.
- Tortious interference with a contract or business agreement negatively affects another’s ability to do business freely.
How Are Antitrust Laws Enforced?
Antitrust laws are enforced through the government and the people. There are criminal and civil penalties for any violation of antitrust laws. People who violate antitrust laws can face penalties such as fines, damage awards, and even prison time.
The government urges private people to report and take action when they see an antitrust violation, which is why they allow people and companies to be able to bring suit. In addition, federal and state antitrust laws provide for triple damages.
What Are Some Examples of Antitrust Laws Being Violated?
Some examples of antitrust laws that are being violated are:
- Significant price changes of very similar product
- Suspicious statements from the seller
- A company has low bidders on all contracts
- Having significant unexplainable dollar difference between bids
How Do Antitrust Laws Apply to the Healthcare Industry?
Antitrust laws in the healthcare industry have only developed recently within the past thirty years. Before the 1970s, antitrust laws were typically not applied to “learned professions” like medicine and law. Nevertheless, health care expanded from a local profession to national service. In 1975, the Supreme Court ruled that antitrust law applies to the practice of medicine and other “learned professions.”
Do I Need a Business Attorney?
A business attorney will advise you on whether the business practice you are associated with complies with competition and trade regulations. An attorney will undertake a broad range of different legal activities, including litigation, government investigation, merger advice, and counseling.