Up-C structure

KPMG explains that private business owners are using Up-C structures to unlock value beyond a traditional IPO. We describe a typical Up-C structure and highlight relevant accounting considerations and SEC filing requirements. 

Applicability

• Company that is considering an IPO

Relevant dates

• Effective immediately

Key impacts

• An Up-C structure enables owners of a flow-through entity to conduct an IPO via a newly formed C corporation, which ultimately holds only an equity interest in the flow-through entity
• The flow-through nature of the entity allows the C corporation to receive a step-up of the partnership assets’ tax bases, which creates future cash-tax savings. The owners typically retain 85% of these savings through a tax receivable agreement, and the new public investors benefit from the remaining 15%.
• By retaining economic interests in the pass-through entity, the owners also retain the benefits of single-level taxation.
• This update provides additional accounting considerations when determining how a company should present the noncontrolling interest of shares of the flow-through entity retained by the original owners in its financial statements.

Report contents

• What is an Up-C structure?
• What should companies consider before using an Up-C?
• Creating an Up-C structure
• Tax-receivable agreement
• C corporation’s accounting
• SEC requirements