WeWork is reportedly working on a weird IPO structure that unlocks major tax benefits for insiders
- WeWork is reportedly working on a weird corporate structure for its upcoming IPO that would give massive tax benefits to early insiders, but not to those who buy in later.
- According to the Financial Times, the new structure means CEO Adam Neumann and other insiders will pay an individual income tax rate. Anyone buying shares in the IPO will be taxed at a corporate and individual level.
- The move follows some other curious manoeuvres by WeWork, namely Neumann selling his shares and borrowing against his remaining holdings to the tune of $700 million.
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WeWork has created a weird corporate structure ahead of its public float which will unlock massive tax benefits for its CEO and early insiders, but won't necessarily benefit shareholders buying in at the IPO.
According to The Financial Times, WeWork has adopted what's known as an "Up-C" structure. This turns WeWork into a limited liability company, called We Company MC LLC. At IPO, investors will be able to buy shares in a separate holding company that owns a stake in We Company MC LLC.
Profits will be split between the holding company and the partners in the LLC, which will reportedly include CEO Adam Neumann and unnamed early investors.
The upshot is that Neumann and other LLC insiders will pay tax on any profits at individual income tax rates. Public shareholders will face double taxation, since the holding company will pay tax on its income, and then they will have to pay tax on any dividends.
Neumann will also retain the bulk of voting rights in WeWork, despite the new structure, according to The Financial Times.
It isn't clear at this point how much insiders will benefit from the structure versus public shareholders. But the Financial Times, citing an analysis by legal firm Simpson Thatcher, suggests an LLC partner would see taxes lowered by 7 percentage points.
Robert Seber, partner at law firm Vinson & Elkins, told the newspaper: "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."
The change follows other unusual moves by WeWork ahead of its IPO, such as Neumann selling his shares and borrowing against his holdings to the tune of $700 million.
WeWork declined to comment.