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Implications of Essential Business Exemptions for Private Equity Portfolio Companies Implications of Essential Business Exemptions for Private Equity Portfolio Companies

Implications of Essential Business Exemptions for Private Equity Portfolio Companies

Most states have issued executive orders shutting down all non-essential businesses in response to the COVID-19 pandemic. As of mid-day on March 31, 2020, these states include Alaska, Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming, as well as the District of Columbia. In addition, several other states have issued partial shutdown orders, and several cities and counties have put in place full shutdown orders or lesser restrictions.

While the state executive orders are not uniform, most exclude from the restrictions “essential businesses.” There is no clear definition of “essential business” at the federal level, although the federal government has issued non-binding guidance on what businesses are considered essential (which can be found here). That guidance suggests exempting from shutdowns businesses that are “essential to continued critical infrastructure viability, including staffing operations centers, maintaining and repairing critical infrastructure, operating call centers, working construction, and performing operational functions, among others. It also includes workers who support crucial supply chains and enable functions for critical infrastructure. The industries they support represent, but are not limited to, medical and healthcare, telecommunications, information technology systems, defense, food and agriculture, transportation and logistics, energy, water and wastewater, law enforcement, and public works.”

The state orders, by and large, exempt similar categories, but each state’s order must be reviewed individually. For example, West Virginia’s order (which can be found here) exempts certain health care operations, critical infrastructure sectors, certain essential retail businesses such as grocery stores, pharmacies, restaurants for take-out and delivery, coal-mining and childcare facilities and providers, among others. Louisiana’s order (which can be found here) adopts the federal government’s guidelines only. Delaware’s order (which can be found here) delegates authority to a state agency the ability to amend the state’s list of exempted businesses.

For many organizations, it may not be clear whether the business is an “essential business” or if a part or division of the business is exempted. Many state shutdown orders have further exempted businesses that support essential businesses as well. As such, portfolio companies of private equity funds that provide synergistic support to another portfolio company that is exempted may also be viewed as exempted.

A detailed analysis of a business, including all synergies and cross-company support in a private equity fund’s holdings, is necessary to determine if a particular business is “essential” in whole or in part and therefore exempt from the restrictions of an executive state order promulgated in connection with the COVID-19 pandemic. Many states have also established a procedure for a case-by-case determination of exemption.

How Ice Miller Can Help

If you are a private equity fund, portfolio company of a private equity fund, or other business uncertain as to whether you are considered “essential” and whether you are bound to the restrictions in place by your state government, contact the Ice Miller COVID-19 Task Force for more information and guidance.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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