Memorandum
SEC Issues Favorable Interpretive Guidance on Rule 144 Holding
Period in UP-C Structure
November 1, 2016

SEC Staff’s Interpretive Guidance
On November 1, 2016, the staff of the Division of Corporation Finance of the Securities and Exchange
Commission issued interpretive guidance concluding that the Rule 144(d) holding period for corporation
shares acquired upon an exchange of partnership units in an UP-C structure commences upon the holder’sacquisition of (including payment of the full consideration for such partnership units under Rule 144(d)(1))
the partnership units. The staff’s interpretive guidance was issued in response to a request jointly submitted
by Simpson Thacher & Bartlett LLP and two other law firms, and expands upon analogous guidance issued
earlier this year relating to exchanges in an “UPREIT” structure of partnership units for shares in a parent
real estate investment trust. 1 Click here to access the staff’s interpretive guidance and the request.
The UP-C structures as to which the interpretive guidance was sought are described in greater detail in therequest, but the guidance is sufficiently broad that it should apply to those UP-C structures employing thecustomary range of features that have developed in the marketplace to date.
We believe this new interpretive guidance will have significant benefits to companies employing an UP-Cstructure. The guidance will permit holders of partnership units in an UP-C structure who have held such
units for the requisite holding period under Rule 144 to rely on that rule to immediately publicly resell thecorporation shares they receive upon an exchange of such units, subject to the limitations of Rule 144
applicable to affiliates of the corporation. As a result, it will ordinarily no longer be necessary for thesecompanies to expend the time and expense associated with filing a registration statement to cover theissuance of corporation shares to exchanging holders of partnership units or the resale of such corporation
shares by such exchanging holders – at least for those holders who are not affiliates with significant share
1 Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Inc., SEC No-Action Letter, available athttps://www.sec.gov/divisions/corpfin/cf-noaction/2016/bankofamerica-merrilllynch-pfs-031416-144.htm.
Simpson Thacher & Bartlett LLP

Memorandum – November 1, 2016

2ownership. We also anticipate that companies employing an UP-C structure may no longer feel the need topreclude exchanges during the first year following the corporation’s IPO, which preclusion has frequently
been employed historically in order to preserve the ability to eventually register the issuance of corporation
shares to exchanging holders of partnership units.

UP-C Structure
Businesses taxed as partnerships for U.S. federal income tax purposes frequently employ an UmbrellaPartnership – C-Corporation (UP-C) structure when they conduct an IPO. In an IPO employing an UP-C
structure, rather than offering public investors a direct investment in the existing tax partnership, a separate
corporation is formed which offers its shares to public investors and in turn acquires a corresponding equity
interest in the existing tax partnership. As a result, the pre-IPO owners of the business continue to holdtheir interests directly in the tax partnership and public investors hold an indirect equity interest in the tax
partnership through the corporation. When they wish to exit their investment, the pre-IPO owners may
exchange their partnership interests for the publicly-traded shares of the corporation. Click here for
additional information regarding the UP-C structure.

For further information, please contact one of the following members of the Firm’s Corporate Department.

WASHINGTON, D.C.

NEW YORK CITY

Joshua Ford Bonnie+1-202-636-5804
jbonnie@stblaw.com

Joseph H. Kaufman+1-212-455-2948
jkaufman@stblaw.com

The contents of this publication are for informational purposes only. Neither this publication nor the lawyers who authoredit are rendering legal or other professional advice or opinions on specific facts or matters, nor does the distribution of thispublication to any person constitute the establishment of an attorney-client relationship. Simpson Thacher & Bartlett LLP
assumes no liability in connection with the use of this publication. Please contact your relationship partner if we can be ofassistance regarding these important developments. The names and office locations of all of our partners, as well as ourrecent memoranda, can be obtained from our website, www.simpsonthacher.com.

Simpson Thacher & Bartlett LLPMemorandum – November 1, 2016

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