In a structure commonly referred to as an “up-C,” an existing limited liability company or other partnership form (referred to here for convenience as “LLC”) undertakes a public offering through a newly formed corporation, which is structured as a holding company that owns an interest in the LLC. Private companies owned principally by individuals or by private equity sponsors are frequently organized as LLCs or other entities that are considered partnerships for tax purposes. These entities are not taxed at the entity level, subjecting the owners to only one layer of income tax. Traditionally, if the owners wanted to undertake a public offering of the entity’s securities, the owners would re-organize the LLC or partnership as a corporation and offer and sell that company’s common stock to the public in the offering. Increasingly, owners are employing the up-C structure as an alternative. Use of the up-C approach allows the LLC or other entity to undertake a public offering, albeit through a holding company, while maintaining the partnership status for the LLC, where the principal assets and operations of the business remain. This structure is particularly attractive to private equity-backed companies because it maintains many of the tax benefits of a partnership, offers an ongoing exit strategy, and enables the sponsors to preserve some control over the business.

Overview of the Structure -

The up-C structure derives its name from the upREIT structure, which has been commonly used by real estate investment trusts since the 1990s. In the up-C structure, the owners of an operating business, organized as a partnership for tax purposes, form a corporation, with shares of Class A and Class B common stock, which becomes the managing member of the existing operating company. The newly formed corporation offers shares of Class A common stock to the public in an IPO. The shares of Class B common stock are issued to the historic owners and entitle the Class B holders to voting rights, but not economic rights (such as dividends or liquidation rights) in the new public company.