By Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance
FORTUNE -- We've seen companies like News Corp (NWS), Blackstone (BX), and LinkedIn (LNKD) chip away at shareholder rights by limiting the voting rights of shareholders. Now Carlyle is adding insult to injury.
In its recent proposed initial public offering (IPO), Carlyle will have no requirements for an independent board, virtually no voting rights for owners, and no ability for owners to sue. As an added bonus, owners will be paying its tax liabilities without any surety that they will receive cash distributions sufficient to cover those costs.
So, what would happen if every company did a Carlyle-style IPO? The private equity firm's IPO proposal, which is brought to you by the clever folks at J.P. Morgan (JPM), Citigroup (C), and Credit Suisse (CS), with some help from law firms Simpson Thacher and Skadden Arps begs us to ask the question.
For example, on the tax front, what if all large companies were to adopt Carlyle's approach where the owners (called unit-holders, which is analogous to shareholders) pay the corporation's taxes? What impact would eliminating corporate income taxes (which is required of C-corporations) have on our economy and budget deficit?
It's not an unreasonable question, Bob Monks, founder of LENS Investment Management, told me. "Companies are already moving offshore to avoid taxes, fiduciary duties, and regulatory responsibilities. It is astounding how much business is already transacted in offshore tax-havens," he says.
According to Carlyle documents filed with the SEC, the proposed IPO "involves complex provisions of U.S. federal income tax for which no clear precedent or authority may be available." Owners will be subject to that risk. Congress could act to preclude the Carlyle tax structure, but it has not passed anything so far, the documents state. More
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