The document discusses the benefits and considerations of a UP-C structure for initial public offerings. A UP-C structure allows a partnership business to go public while maintaining its underlying partnership structure. It involves forming a new corporation (PubCo) that contributes IPO proceeds to the operating partnership (Company) in exchange for an interest. Historic equity holders receive voting shares in PubCo and retain their interests in Company. This allows pass-through taxation while providing liquidity via converting partnership units to PubCo shares. Key benefits include tax receivable agreements whereby PubCo pays historic holders for tax savings, pass-through taxation, liquidity, partnership equity flexibility, and control retention. Additional considerations include consolidation requirements, complexity, public company obligations, and

1. UNDERSTANDING THE UP-C IPOSTRUCTURE:
BENEFITS &CONSIDERATIONS
Jon Zefi, LL.M., J.D.
EisnerAmper, LLP
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2. AGENDA.
o The UP-C Structure.
 What Is It?
 The Transaction.
 Structure Immediately After IPO.
 Benefits of the UP-C Structure.
 Additional Considerations.
o Benefits of the UP-C Structure.
 Tax Receivable Agreement – An Overview.
 Tax Receivable Agreement – Typical Provisions.
 Tax Receivable Agreement – Benefits.
 Pass-Through Taxation.
 Liquidity.
 Partnership Equity.
 Control.
o Additional Considerations. 2

3. WHAT IS IT?
o The UP-C structure is an extension of the UP-REIT structure commonly used in REIT initial
public offerings (“IPOs”).
o In recent years the UP-C structure has become increasingly common for IPOs of companies
that have operated as partnerships, for tax purposes.
o The UP-C structure essentially enables businesses that operate as partnerships, for tax
purposes, to “go public” while maintaining their underling structure.
THE UP-CSTRUCTURE.
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4. THE UP-CSTRUCTURE. (CONTINUED)
THE TRANSACTION.
o The members or partners of the original company (the “Company”) form a new corporation
(the “PubCo”), which initiates the IPO on behalf of the Company.
o The PubCo then contributes the IPO proceeds to the Company in exchange for an interest in
the Company, effectively transforming the Company into a subsidiary of the PubCo.
o The operating business continues at the Company level, which is taxed as a partnership.
o The Company’s original equity holders (the “historic equity holders”) retain some or all of
their interests in the Company.
o All Pre-IPO interests in the Company are recapitalized into “common units” in the Post-IPO
Company.
o The PubCo is typically granted management control over the Company and receives a
number “common units” equal to the number of outstanding PubCo shares following the
IPO.
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5. THE UP-CSTRUCTURE. (CONTINUED)
THE TRANSACTION. (CONTINUED)
o The historic equity holders receive voting shares in the PubCo that allow them to maintain
pro rata voting power relative to their holdings in the Company after the IPO, but no
economic interest in the PubCo.
o The historic equity holders are allowed to convert their “common units” into common
shares of the PubCo after a Post-IPO lock up period.
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6. Historic
Company
Equity
Holders
Public/IPO
Investors
PubCo
The
Company
1. Voting Shares
2. NO Economic
Interest
1. Common Shares
2. 100% Economic
Interest
1. Limited Partner Interest OR
Membership Units.
2. 100% Economic Interest
THE UP-CSTRUCTURE. (CONTINUED)
Cash
STRUCTURE IMMEDIATELY FOLLOWING IPO.
IPO Proceeds
1. General Partner Interest OR
Membership Units.
2. Managing Member Status.
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7. BENEFITS OF THE “UP-C” STRUCTURE.
o Tax Receivable Agreements (“TRA”): Under a TRA the historic equity holders are generally
entitled to payments from the PubCo for certain tax savings realized by PubCo under the
UP-C structure.
o Pass-Through Taxation: The historic equity holders maintain continuing pass-through
treatment for income realized by the Company.
o Liquidity: The historic equity holders obtain liquidity rights to exchange partnership units
for PubCo share.
o Partnership Equity: The PubCo has the ability to use partnership units to make future
acquisitions and compensate employees.
o Control: The historic equity holders retain control over the Company.
THE UP-CSTRUCTURE. (CONTINUED)
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8. TAX RECEIVABLE AGREEMENTS - OVERVIEW.
o Generally, the historic equity holders sell their interest in the Company to the PubCo, either,
at the closing of the IPO (in order receive some liquidity) or following the IPO (when they
elect to have their Company common units redeemed).
o As a result of the aforementioned sale, the PubCo receives a “step-up” in the tax basis of its
assets.
o The step-up in tax basis results in increased tax depreciation and amortization to the PubCo,
which in most cases reduces the PubCo’s taxable income going forward.
o The TRA insures that the historic equity holders are able to capture most of the value
associated with the step-up in tax basis.
BENEFITS OF THE “UP-C”STRUCTURE.
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9. BENEFITS OF THE “UP-C”STRUCTURE. (CONTINUED)
TAX RECEIVABLE AGREEMENTS - TYPICAL PROVISIONS.
o Typically, the TRA requires the PubCo to pay the historic equity holder at least 85% of any
tax savings generated by the step-up in tax basis attributable to the IPO.
o The tax savings are calculated by measuring the PubCo’s actual tax liability against a
projections of the PubCo’s tax liability had it not benefited from the increased amortization
and depreciation deductions with respect to the step-up in tax basis.
o Payments under the TRA are generally treated as additional purchase price paid for the
interest sold to the PubCo by the historic equity holders.
o Each TRA payment creates an additional step-up in tax basis and interest deductions, which
in turn lead to more TRA payments.
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10. TAX RECEIVABLE AGREEMENTS – BENEFITS.
o TRAs permit the historic equity holders to extract additional value from the PubCo after the
IPO without:
 Decreasing the value of the PubCo during the IPO; or
 Affecting the value of the PubCo’s stock price later on (the market is not able to value the future
benefit to the PubCo of the tax attributes associated with the step-up in tax basis or discount the
value of the PubCo to account for payment obligation under a TRA).
o TRAs may also provide for payments with respect to other tax benefits transferred to PubCo
(e.g. NOLS, tax credits, etc.).
BENEFITS OF THE “UP-C”STRUCTURE. (CONTINUED)
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11. PASS-THROUGH TAXATION.
o The historic equity holders may retain common units in the Company rather than
converting these units to the PubCo’s common shares; thus, retaining pass-through tax
treatment and one level of taxation.
o Pass-through tax treatment allows the historic equity holders to increase their tax basis in
their common units to the extent of their allocable shares of the Company’s undistributed
taxable income (i.e., retained earnings).
 This increased tax basis will result in the Company equity holder recognizing less taxable gain on the
ultimate sale of Company common units.
 To the extent the Company has losses, such losses pass through to historic equity holders.
BENEFITS OF THE “UP-C”STRUCTURE. (CONTINUED)
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12. LIQUIDITY.
o The historic equity holders are generally given the option to exchange their Post-IPO
common units in the Company for the PubCo’s common shares following an IPO lock-up
period.
o The Company’s common units generally maintain a 1:1 conversion ratio with the PubCo’s
common shares.
o The historic equity holders are also allowed to liquidate some or all of their position in the
Company at the closing of the IPO in exchange for cash.
PARTNERSHIP EQUITY.
o The PubCo has addition form of equity (i.e. partnership units), which it can use to make
acquisitions and to compensate employees, giving it greater flexibility in structuring
acquisitions and long term employee compensation plans.
BENEFITS OF THE “UP-C”STRUCTURE. (CONTINUED)
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13. CONTROL.
o The historic equity holders retain voting control over the business by granting themselves a
special class of PubCo stock (generally referred to as ‘B’ Stock) that carries the bulk of the
voting rights, which allows them to retain control of the Company.
BENEFITS OF THE “UP-C”STRUCTURE. (CONTINUED)
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14. ADDITIONAL CONSIDERATIONS.
o The PubCo generally needs to control the Company to consolidate financial statements.
o The administrative complexity of the UP-C Structure and the TRA will require additional
accounting and tax planning.
o Public companies are subject to a higher level of scrutiny and reporting requirements.
o Maintaining a 1:1 conversion ratio between the Company’s common units and the PubCo
stock may prove difficult depending on the Company’s distribution policy and PubCo’s
dividend policy.
o Publicly-traded Partnership (“PTP”) rules treat partnerships as corporations if partnership
interest units are readily tradable on a market.
 These rules can apply to partnerships with over 100 partners.
o Future tax legislation may reduce the benefits the UP-C Structure by taxing gain recognized
by the historic equity holders as ordinary income.
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