Profits Interest Clauses
(Limited Liability Company Operating Agreement)

Summary

Use these clauses commonly found in limited liability company (LLC) operating agreements or limited partnership agreements to authorize the grant of profits interests. The clauses include provisions concerning key definitions, tax treatment, distributions, and transfer restrictions related to profits interests. These clauses contain drafting notes and alternate and optional clauses. A profits interest is an equity interest in a partnership (or entity taxed as a partnership, such as an LLC) providing the recipient with the right to share in future profits and appreciation of a company, typically subject to the achievement of time-based and/or performance-based vesting conditions. You can use these clauses in conjunction with the Operating Agreement (Manager-Managed, Multiple Member) (DE LLC), available in Practical Guidance's Corporate and M&A practice area, which contains all provisions of the LLC operating agreement. The article and section numbering used in this form correspond to the article and section numbering in that agreement. Alternatively, you may adapt these clauses for another LLC or limited partnership agreement. For a full listing of key content covering equity incentive plan considerations, see Equity Incentive Plan Resource Kit. For more information 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. For additional templates related to the granting of profits interests, see Profits Interest Plan (LLC), Profits Interest Award Agreement, and Section 83(b) Election Form (Profits Interest).