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to the management fee payable by our company under the management services agreement. The management services agreement provides that |
businesses that we may acquire in the future may enter into transaction services agreements with our manager pursuant to which our businesses |
will pay fees to our manager. See Item 1 “ Business—Our Manager—Our Manager as a Service Provider ” for more |
information about these agreements. Unlike fees paid under the offsetting management services agreements, fees that are paid pursuant |
to such transaction services agreements will not reduce the management fee payable by us. Therefore, such fees will be in addition to |
the management fee payable by us or offsetting management fees paid by businesses that we may acquire in the future. The fees to be paid to our manager pursuant to |
these transaction service agreements will be paid prior to any principal, interest or dividend payments to be paid to us by our businesses, |
which will reduce the amount of cash available for distributions to our shareholders. Our manager’s profit allocation may |
induce it to make decisions and recommend actions to our board of directors that are not optimal for our business and operations. Our manager, as holder of all of the allocation |
shares, will receive a profit allocation based on the extent to which gains from any sales of our subsidiaries plus their net income since |
the time they were acquired exceed a certain annualized hurdle rate. As a result, our manager may be encouraged to make decisions or to |
make recommendations to our board of directors regarding our business and operations, the business and operations of our businesses, acquisitions |
or dispositions by us or our businesses and distributions to our shareholders, any of which factors could affect the calculation and payment |
of profit allocation, but which may otherwise be detrimental to our long-term financial condition and performance. The obligations to pay the management fee |
and profit allocation, including the put price, may cause us to liquidate assets or incur debt. If we do not have sufficient liquid assets to |
pay the management fee and profit allocation, including the put price, when such payments are due and payable, we may be required to liquidate |
assets or incur debt in order to make such payments. This circumstance could materially adversely affect our liquidity and ability to |
make distributions to our shareholders. See Item 1 “ Business—Our Manager ” for more information about these payment |
obligations. 68 Risks Related to Taxation Our shareholders will be subject to taxation on their share of our |
taxable income, whether or not they receive cash distributions from us. Our company is a limited liability company and |
is classified as a partnership for U.S. federal income tax purposes. Consequently, our shareholders are subject to U.S. federal income |
taxation and, possibly, state, local and foreign income taxation on their share of our taxable income, whether or not they receive cash |
distributions from us. There is, accordingly, a risk that our shareholders may not receive cash distributions equal to their allocated |
portion of our taxable income or even in an amount sufficient to satisfy the tax liability that results from that income. This risk is |
attributable to a number of variables, such as results of operations, unknown liabilities, government regulations, financial covenants |
relating to our debt, the need for funds for future acquisitions and/or to satisfy short- and long-term working capital needs of our businesses, |
and the discretion and authority of our board of directors to make distributions or modify our distribution policy. As a partnership, our company itself will not |
be subject to U.S. federal income tax (except as may be imposed under certain recently enacted partnership audit rules), although it will |
file an annual partnership information return with the IRS. The information return will report the results of our activities and will |
contain a Schedule K-1 for each company shareholder reflecting allocations of profits or losses (and items thereof) to our members, that |
is, to the shareholders. Each partner of a partnership is required to report on his or her income tax return his or her share of items |
of income, gain, loss, deduction, credit, and other items of the partnership (in each case, as reflected on such Schedule K-1) without |
regard to whether cash distributions are received. Each holder will be required to report on his or her tax return his or her allocable |
share of company income, gain, loss, deduction, credit and other items for our taxable year that ends with or within the holder’s |
taxable year. Thus, holders of common shares will be required to report taxable income (and thus be subject to significant income tax |
liability) without a corresponding current receipt of cash if we were to recognize taxable income and not make cash distributions to the |
shareholders. Generally, the determination of a holder’s distributive share |
of any item of income, gain, loss, deduction, or credit of a partnership is governed by the operating agreement, but is also subject to |
income tax laws governing the allocation of the partnership’s income, gains, losses, deductions or credits. These laws are complex, |
and there can be no assurance that the IRS would not successfully challenge any allocation set forth in any Schedule K-1 issued by us. |
Whether an allocation set forth in any particular K-1 issued to a shareholder will be accepted by the IRS also depends on a facts and |
circumstances analysis of the underlying economic arrangement of our shareholders. If the IRS were to prevail in challenging the allocations |
provided by the operating agreement, the amount of income or loss allocated to holders for U.S. federal income tax purposes could be increased |
or reduced or the character of allocated income or loss could be modified. See “ Material U.S. Federal Income Tax Considerations ” |
included in our amended registration statement on Form S-1 filed with the SEC on January 31, 2022, for more information. All of our income could |
be subject to an entity-level tax in the United States, which could result in a material reduction in cash flow available for distribution |
to shareholders and thus could result in a substantial reduction in the value our shares. Given the number of shareholders that we have, |
and because our shares are listed for trading on the over-the-counter market, we believe that our company will be regarded as a publicly-traded |
partnership. Under the federal tax laws, a publicly-traded partnership generally will be treated as a corporation for U.S. federal income |
tax purposes. A publicly-traded partnership will be treated as a partnership, however, and not as a corporation for U.S. federal tax purposes |
so long as 90% or more of its gross income for each taxable year in which it is publicly traded constitutes “qualifying income,” |
within the meaning of section 7704(d) of the Internal Revenue Code of 1986, as amended, or the Code, and we are not required to register |
under the Investment Company Act. Qualifying income generally includes dividends, interest (other than interest derived in the conduct |
of a lending or insurance business or interest the determination of which depends in whole or in part on the income or profits of any |
person), certain real property rents, certain gain from the sale or other disposition of real property, gains from the sale of stock or |
debt instruments which are held as capital assets, and certain other forms of “passive-type” income. We expect to realize |
sufficient qualifying income to satisfy the qualifying income exception. We also expect that we will not be required to register under |
the Investment Company Act. 69 In certain cases, income that would otherwise qualify for the qualifying |
income exception may not so qualify if it is considered to be derived from an active conduct of a business. For example, the IRS may assert |
that interest received by us from our subsidiaries is not qualifying income because it is derived in the conduct of a lending business. |
If we fail to satisfy the qualifying income exception or is required to register under the Investment Company Act, we will be classified |
as a corporation for U.S. federal (and certain state and local) income tax purposes, and shareholders would be treated as shareholders |
in a domestic corporation. We would be required to pay federal income tax at regular corporate rates on its income. In addition, we would |
likely be liable for state and local income and/or franchise taxes on our income. Distributions to the shareholders would constitute ordinary |
dividend income (taxable at then existing ordinary income rates) or, in certain cases, qualified dividend income (which is generally subject |
to tax at reduced tax rates) to such holders to the extent of our earnings and profits, and the payment of these dividends would not be |
deductible to us. Shareholders would receive an IRS Form 1099-DIV in respect of such dividend income and would not receive a Schedule |
K-1. Taxation of our company as a corporation could result in a material reduction in distributions to our shareholders and after-tax |
return and would likely result in a substantial reduction in the value of, or materially adversely affect the market price of, our shares. The present U.S. federal income tax treatment |
of an investment in our shares may be modified by administrative, legislative, or judicial interpretation at any time, and any such action |
may affect investments previously made. For example, changes to the U.S. federal tax laws and interpretations thereof could make it more |
difficult or impossible to meet the qualifying income exception for our company to be classified as a partnership, and not as a corporation, |
for U.S. federal income tax purposes, necessitate that our company restructure its investments, or otherwise adversely affect an investment |
in our shares. In addition, we may become subject to an entity level tax in one or |
more states. Several states are evaluating ways to subject partnerships to entity level taxation through the imposition of state income, |
franchise, or other forms of taxation. If any state were to impose a tax upon our company as an entity, our distributions to you would |
be reduced. Complying with certain tax-related |
requirements may cause us to forego otherwise attractive business or investment opportunities or enter into acquisitions, |
borrowings, financings, or arrangements we may not have otherwise entered into. In order for our company to be treated as a partnership |
for U.S. federal income tax purposes and not as a publicly traded partnership taxable as a corporation, we must meet the qualifying income |
exception discussed above on a continuing basis and must not be required to register as an investment company under the Investment Company |
Act. In order to effect such treatment, we may be required to invest through foreign or domestic corporations, forego attractive business |
or investment opportunities or enter into borrowings or financings we (or any of our subsidiaries, as the case may be) may not have otherwise |
entered into. This may adversely affect our ability to operate solely to maximize our cash flow. In addition, we may not be able to participate |
in certain corporate reorganization transactions that would be tax free to our shareholders if we were a corporation for U.S. federal |
income tax purposes. Non-corporate investors who are U.S. taxpayers |
will not be able to deduct certain fees, costs or other expenses for U.S. federal income tax purposes. We will pay a management fee (and possibly certain |
transaction fees) to our manager. We will also pay certain costs and expenses incurred in connection with activities of our manager. We |
intend to deduct such fees and expenses to the extent that they are reasonable in amount and are not capital in nature or otherwise nondeductible. |
It is expected that such fees and other expenses will generally constitute miscellaneous itemized deductions for non-corporate U.S. taxpayers |
who hold our shares. Under current law in effect for taxable years beginning after December 31, 2017 and before January 1, 2026, non-corporate |
U.S. taxpayers may not deduct any such miscellaneous itemized deductions for U.S. federal income tax purposes. A non-corporate U.S. taxpayer’s |
inability to deduct such items could result in such holder reporting as his or her share of company taxable income an amount that exceeds |
any cash actually distributed to such U.S. taxpayer for the year. U.S. holders of our shares that are corporations generally will be able |
to deduct these fees, costs and expenses in accordance with applicable U.S. federal income tax law. A portion of the income arising from an |
investment in our shares may be treated as unrelated business taxable income and taxable to certain tax-exempt holders despite such holders’ |
tax-exempt status. We expect to incur debt with respect to certain of our investments that will be treated as “acquisition |
indebtedness” under section 514 of the Code. To the extent we recognize income from any investment with respect to which there is |
“acquisition indebtedness” during a taxable year, or to the extent we recognize gain from the disposition of any investment |
with respect to which there is “acquisition indebtedness,” a portion of that income will be treated as unrelated business |
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