Private Equity and Up-C IPO Structures: Legal and Tax Implications, Benefits and Challenges, Mitigating Risks

Many businesses that are structured as pass-through entities for federal income tax purposes and that wish to complete an IPO frequently use Up-C structures (Up-Cs). In an Up-C, the partnership undertakes a public offering through a newly formed corporation as a holding company that owns an interest in the pass-through entity. This allows the pass-through entity to launch a public offering without disrupting the tax status of the pass-through entity where the principal assets and operations remain.

The Up-C transaction is a popular IPO transaction structure in the private equity industry because it allows members of pass-through entities to achieve liquidity through rights to exchange partnership equity for publicly traded equity. These members also may monetize valuable tax attributes arising from such exchanges pursuant to a tax receivable agreement.

Despite the significant tax benefits of an Up-C structure there are a number of considerations that sponsors and their counsel should take into account with an Up-C structure, including registration statement disclosures, marketing the IPO, ongoing tax, accounting, legal and compliance burdens, and the rising litigation challenges by minority shareholders targeting the common features of an Up-C structure. 

Listen as our authoritative panel discusses the legal and tax considerations for Up-C IPO structures and provides guidance for navigating these complex transactions and mitigating risks.