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Jonathan Price – CRE & Flex Expert
[bctt tweet=”WeWork has turned to an umbrella partnership corporation (Up-C) structure ahead of its initial public offering that would give CEO Adam Neumann and early investors tax benefits.” username=”allwork_space”]
This arrangement has become popular in the past decade, with at least 74 Up-Cs going public since 2010.
WeWork started prepping for this move when it changed from a corporation to a limited liability company. The IPO would allow investors a chance to buy shares in a separate holding company that would own a stake in the LLC.
While Neumann will have the majority of voting rights in the holding company, he and other early investors will hold their economic interests as partners. This would allow Neumann and insiders to pay taxes on their share of any profits at individual income tax rates, rather than double taxation of U.S. corporate profits that other IPO investors would have to pay.
“The Up-C structure is a way for owners and pre-IPO investors to create tax savings in the public company that are not fully shared with the public shareholders,” said Robert Seber, a partner at the law firm Vinson & Elkins. “It definitely benefits owners and pre-IPO investors, but it is fully disclosed to shareholders and they seem to discount it.”
