Tax Receivable Agreement Change Of Control
Traditionally, legacy partners obtain super-voting shares in the new C Corp public and therefore retain control of the old and C Corp businesses. Therefore, booking for accounting purposes is not covered by accounting purchasing rules and there is no leap for accounting purposes. This inherent difference between the accounting asset base and the tax value base creates a significantly deferred tax asset. An assessment of future income is required to determine whether there is sufficient revenue to take advantage of this deferred tax asset. This analysis may indicate that an assessment allowance is required in relation to the deferred tax payable. The passage of tax reform last December gave investors greater security when it comes to corporate tax rates in the near future. One consequence is the increased interest of some investors in acquiring payment rights under existing tax receivable agreements (TRAs). In short, ACCORDS are agreements made by a company (a “pubco”) as part of an IPO to monetize Pubco`s tax attributes after the IPO for the benefit of owners prior to the IPO and investors who acquire payment rights under TRAs to such pre-IPO owners. Our previous article on ARTs focused on some ways in which tax reform could affect the value of TRA payment rights. Since the introduction of tax reform, we have seen a marked increase in investor interest in the acquisition of TRA payment rights, including through hedge funds, family offices and private trust funds. This article describes some of the functions of an AED that an investor should analyze before acquiring rights under an AER. The above discussion was based on a single sale of the interests of the former partners.
However, C Corp could have several rounds of financing and acquisition of partnership interests. In addition, many transactions allow the future exchange of shares of former partners for shares of C Corp. Each of these subsequent sales or exchanges would result in new tranches that must be included in the calculation in order to determine the level of cut that produces the tax savings and who is therefore entitled to the TRA payment. The S-1, which was filed before the IPO, imposes many advertising obligations. Forma instructions are needed to identify the impact of the transaction as if this structure were present in the S-1 since the beginning of the reference period. An estimate of TRA MAXIMALE adhesion, annual maximum and annual minimum annual payments and the fine payment of a TRA termination must be provided.