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Tax Receivable Agreement Change Of Control

The above discussion was based on a single sale of the interests of the former partners. C Corp could, however, have several rounds of financing and the purchase of equity stakes in partnership. In addition, many transactions allow the future exchange of the interests of the former partners for shares of C Corp. Each of these subsequent sales or exchanges would give rise to new tranches of step-ups which would have to be taken into account in the calculation in order to determine which step-up increase tranch has tax savings and therefore the right to payment tra. The Tax Receivable Agreement (TRA) is a contract between the former partners who sold their partnership shares and the new public company C Corp, which acquired the stake to share the value of the tax benefits resulting from the increased sale of the partnership shares. Typically, Legacy partners receive 85% of the Step-up`s tax savings and C Corp retains 15% of the value. One of the consequences is an increased interest on the part of some investors in the acquisition of payment rights under so-called “tax receivables” (“TRAs”) agreements. In short, TRAS are agreements entered into by a company (a “Pubco”) as part of an initial public offering (“IPO”) to monetize the tax characteristics of the post-IPO pubco for the benefit of pre-IPO owners and investors who acquire payment rights under TRAs from these pre-IPO owners. Our previous article on TSEs focused on some of the ways in which tax reform could affect the value of AER`s payment entitlements. Since the adoption of the tax reform, we have seen a significant increase in investor interest in acquiring TRA payment rights, especially hedge funds, family offices and private investment funds. .

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