The UP-C Structure
Employing the Umbrella Partnership–C-Corporation Structure
in an IPO
Joshua Ford Bonnie
Andrew B. Purcell

December 17, 2019For additional UP-C Structure resources, please visit our UP-C page.

Simple UP-C Organizational Structure
Class B common stock• Not publicly traded
Pre-IPO Owners• Voting rights only, which vary
based upon number of LP/LLC
Units held (e.g. 1:1 or 10:1)• No economic rights

Public Shareholders
Class A common stock• Publicly traded• Voting and economic rights• One vote per share in IPOCorp.

IPO Corp.
LP/LLC Units• 100% economic interest in
IPO Corp.

• Not publicly traded
Sole General Partner/Managing Memberand LP/LLC Units• No voting rights• Economic rights only

• Number of LP/LLC Units held equals
number of shares of Class A commonstock outstanding• Exchangeable on 1 for 1
basis for shares of Class
A common stock• 100% of voting power in IPO
L.P./L.L.C.
IPO L.P./L.L.C.

Operating Entities

2Simple UP-C Organizational Structure (continued)• IPO Corp. is a holding company– Sole material asset is equity interest in IPO L.P./L.L.C. (the “OP”)• IPO Corp. is sole managing member of the OP– IPO Corp. operates and controls the business and affairs of the OP– IPO Corp. consolidates the OP and records a noncontrolling interest
related to the OP Units held by the Pre-IPO Owners

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Simple UP-C Organizational Structure (continued)• Maintenance of “Parity” between holders of Class A common stock and holdersof OP Units– Equivalence between Class A common stock issued and OP Units held by
IPO Corp.
– No assets at IPO Corp. except OP Units◦ Activities conducted at the OP or below– No liabilities at IPO Corp. except◦ Tax-related liabilities (taxes and payments under tax receivableagreement)◦ Liabilities as to which IPO Corp. has a “back-to-back” liability from the OP

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UP-C Structure – Equityholder Agreements
Exchange Agreement• Unitholders of the OP may exchange their units for shares of Class A common stockof IPO Corp. on a one-for-one basis– Registration Rights Agreement◦ Prior to recent SEC no action relief, IPO Corp. was required to file aregistration statement in order to permit exchanging unitholders of the OP tosell the shares of stock received upon exchange without an additional holding
period. As in non-UP-C IPOs, IPO Corp. may still enter into a registrationrights agreement that requires it to register sales by significant unitholder(s)Tax Receivable Agreement• Provides for payments to unitholders of the OP who sell or exchange their units in atransaction with IPO Corp.

– The amount of the payments under the Tax Receivable Agreement is determinedbased on IPO Corp.’s use of certain tax attributes that become available to it as aresult of the sale or exchange

5UP-C Structure – Advantages• Pre-IPO Owners retain pass-through treatment and avoid corporate-level taxes• Illustrative “all in” effective tax rates on individual holding OP Units versus IPO Corp. shares◦

Operating income- OP Units: 37%, or 29.6% if 20% pass-through reduction is available- IPO Corp.: 36.8% (21% on corporation plus 20% on shareholder’s receipt of dividend)◦Capital gains- OP Units: 20%- IPO Corp.: 36.8% (21% on corporation plus 20% on shareholder’s receipt of dividend)• Tax Receivable Agreement can deliver significant incremental value to pre-IPO
shareholders– If IPO Corp. share price is $50/share and an OP Unit reflects $10/unit of OP pre-exchange tax basis, a“traditional” Tax Receivable Agreement could generate $10.79/unit of additional proceeds to anexchanging unitholder of the OP over time
◦ This reflects an iterative step-up and assumes a 25% federal and state tax rate and an 85% payout rate

– OP liabilities may increase the step-up– Benefits may be realized over 15 years, assuming that IPO Corp. has sufficient income to utilize alldeductions• M&A flexibility• Compensation flexibility
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UP-C Structure – Disadvantages• Impact on liquidity• Incremental expense• Impact on dividend/reinvestment policy• Impact on index inclusion• Complexity across domains

7Joshua Ford Bonnie
Partner, Capital Markets and Co-Managing Partner of Washington, D.C. Officejbonnie@stblaw.com+1-202-636-5804 / +1-212-455-3986

Josh Bonnie is one of the preeminent IPO lawyers in the nation and regularly counsels public companies on
spin-offs and other significant strategic transactions, capital markets offerings and general corporate andsecurities law matters. Josh has advised many companies on their IPOs, including Invitation Homes,Hilton Worldwide, The Carlyle Group, Blackstone, MasterCard and Accenture. Josh has extensive
experience with complex IPOs, including those entailing cross-border elements or employing multiple-tierumbrella partnership structures.

• Change Healthcare in its 2019 IPO

Josh has a depth of experience advising clients on some of their most significant strategic transactions,
including:• Ares Management on its 2014 IPO• Blackstone on its 2019 corporate conversion, 2015 spin-off of its financial advisory businesses and 2007
sale of $3 billion of non-voting common units to a sovereign wealth fund established by the People’s
Republic of China• Dover Corporation in the 2018 spin-off of its upstream energy business into a standalone, publiclytraded company• Hilton Worldwide on the 2017 spin-offs of the bulk of its real estate business, Park Hotels & Resorts, asa publicly traded real estate investment trust (REIT), and of its timeshare business, Hilton Grand
Vacations, as a separate publicly traded company• Ingersoll Rand on its 2013 spin-off of its commercial and residential security businesses and 2009
reorganization incorporating its parent company in Ireland• Underwriters on the 2018 IPO ofGoosehead Insurance• Invitation Homes on its 2017 IPO, thesecond largest IPO in history by a U.S.
REIT
• Medley Management on its 2014 IPO• Hilton Worldwide on its 2013 IPO, thelargest IPO in history by a hospitality
company and second largest U.S. IPO ofthe year
• Brixmor Property Group on its 2013 IPO• Quintiles on its 2013 IPO• Underwriters on the 2013 IPO of ArtisanPartners• The Carlyle Group on its 2012 IPO• The Carlyle Group on its announced corporate conversion and the 2010 and 2007 investments in thatfirm by Mubadala Development Company, the Abu Dhabi–based strategic development and investmentcompany• Blackstone in its 2007 IPO, the largest
U.S. IPO of the year

Josh has been featured in The American Lawyer’s “Dealmakers of the Year,” is recognized in Chambers
Global: The World’s Leading Lawyers for Business, Chambers USA: America’s Leading Lawyers for
Business and The Legal 500 United States as one of the leading capital markets practitioners in the UnitedStates, and is endorsed by PLC Which Lawyer? Chambers says “Joshua Ford Bonnie is spoken of highly bysources, with one commenting: ‘He is a true partner: He is highly commercial, thinks like a business person
and anticipates what we’ll need before we need it.’ This source adds: ‘His customer service is as good as itgets.’ He is also highlighted as being ‘very pragmatic and knowledgeable’ and is particularly noted for hishandling of IPOs.” The Legal 500 United States says that “‘IPO powerhouse’ Joshua Ford Bonnie is notedas ‘second-to-none’”.

• MasterCard on its 2006 IPO, the largest
U.S. IPO of the year

• Evercore on its 2006 IPO• Cohen & Steers on its 2004 IPO• Ingersoll Rand on multiple capital
markets offerings• Allegion on multiple capital marketsofferings

8Andrew B. Purcell
Partner, Tax
apurcell@stblaw.com+1-212-455-3064

A partner in the Firm’s Tax Practice, Drew Purcell advises clients on anarray of tax matters, including IPO and capital market transactions, credit
transactions, mergers and acquisitions, spin-offs and private equity fundformations. Drew’s clients have included Blackstone, Macquarie
Infrastructure and Real Assets, New Mountain Capital, Cerberus, Hilton
Worldwide and Gardner Denver.
Drew has a depth of experience representing clients on the tax aspects ofsome of their most significant transactions, including:• Blackstone on its 2019 corporate conversion and 2015 spin-off of its
financial advisory businesses• Refinitiv on its ongoing acquisition by the London Stock Exchange• Johnson Controls on the sale of its Power Solutions business toBrookfield• Hilton Worldwide on the 2017 spin-offs of the bulk of its real estatebusiness, Park Hotels & Resorts, as a publicly traded real estate
investment trust (REIT), and of its timeshare business, Hilton Grand
Vacations, as a separate publicly traded company
Drew has been named a “Rising Star” by The Legal 500 United States. He
also co-authored The Umbrellas of Subchapter K, an article on UP-C andother umbrella partnership structures published as part of the Practising
Law Institute’s Partnership Tax Practice Series.

• Change Healthcare in its IPO• Summit Materials in its IPO• Blackstone in the spin-off its financial
and strategic advisory services,
restructuring and reorganization
advisory services as an UP-C structure• Refinitiv in its ongoing acquisition bythe London Stock Exchange• Performance Food Group in its IPO• Pinnacle Foods in its IPO• Underwriters in the IPO of PlanetFitness• Underwriters in the IPO of Nordic
American Offshore• Gardner Denver in its ongoing merger
with Ingersoll Rand Industrial as partof a “reverse Morris trust” transaction• Hilton Worldwide on the spin-off of its
hotel ownership and timesharebusinesses• Johnson Controls on the sale of its
Power Solutions business toBrookfield• PPL Corporation on the spin-off of itsgeneration business and combination
with affiliates of Riverstone

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