WeWork has filed to go public and confirmed it is adopting a complex corporate structure that may unlock massive tax benefits for CEO Adam Neumann and other company insiders — but won't necessarily benefit new shareholders the same way.
WeWork confirmed it is adopting something akin to the so-called "Up-C" structure. This turns WeWork into a limited liability company, called We Company MC LLC. At the IPO, investors will be able to buy shares in a separate holding company that owns a stake in We Company MC LLC.
"Such a structure allows us to separate our WeWork space-as-a-service offering from the rest of our existing businesses, and will also allow us to hold separately any future business areas into which we may expand," the company says in its filing.
The filing was accompanied by a dizzying, "simplified" diagram to explain the structure to investors:
The Financial Times first reported the "Up-C" structure last week, and said that it could mean tax benefits for Neumann and other LLC insiders, who will pay tax on any profits at individual income-tax rates. Public shareholders will face a double taxation, since the holding company will pay tax on its income, and then they will have to pay tax on any dividends.
It isn't clear how much insiders will benefit from the structure versus public shareholders. But the Financial Times, citing an analysis by the legal firm Simpson Thacher, suggests an LLC partner would see taxes lowered by 7 percentage points.
"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," Robert Seber, a partner at the law firm Vinson & Elkins, told the newspaper.
The change coincides with other unusual moves by WeWork ahead of its IPO. The Wall Street Journal reported that Neumann had cashed out around $700 million through stock sales and borrowing against his remaining holdings. A source with knowledge of the transaction said Neumann hadn't sold equity since 2017, and the bulk of the money came from loans.
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- WeWork's CFO says it will generate $2 billion in profit on the desks it's opened this year, and it shows the importance of the 'space-as-a-service' model
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