Profits Interest Award Agreement

Use this profits interest award agreement to grant profits interests to individuals who provide services to a partnership. Profits interests are the most common form of equity compensation granted by such entities because of their generally favorable federal tax treatment. This template contains practical guidance, drafting notes, and alternate and optional clauses. A profits interest is an equity interest in an entity taxed as a partnership that provides the recipient with a right to share in future profits and/or appreciation of the enterprise value. Profits interest grants are typically subject to the satisfaction of vesting conditions. They can be structured so as not to be subject to income tax at the time of grant or vesting, and to receive long-term capital gain treatment on the later sale of the interest (if the holding period requirement is met). For a full listing of key content that can be used by in-house counsel to develop, revise, and implement a company's employee and third-party-related policies, see In-House Company Policies Resource Kit. For a full listing of key content covering equity incentive plan considerations, see Equity Incentive Plan Resource Kit. For a profits interest plan template corresponding to this award agreement, see Profits Interest Plan (LLC). For clauses related to the granting of profits interests in an LLC operating agreement or limited partnership agreement, see Profits Interest Clauses (Limited Liability Company Operating Agreement). For a template Section 83(b) election for the recipient to file (along with instructions) with respect to the profits interests granted under this award agreement, see Section 83(b) Election Form (Profits Interest). For additional guidance on profits interests, see Profits Interests as Incentive Compensation. For more information on partnership equity compensation, see Partnership and LLC Equity Compensation, and Tax Planning for Partners, Partnerships, and LLCs § 13.06.