A profits interest is an equity-like grant used by LLCs, giving the recipient a share of the company's future growth in value from the date of grant forward, without giving them any claim on the value that already existed.
Because an LLC doesn't issue stock the way a C-corp does, profits interests are the closest LLC equivalent to a stock option, and they can often be structured to receive favorable capital gains tax treatment on a later sale if set up correctly and held long enough.
This is exactly why entity structure matters for equity compensation, not just for fundraising: a company that's an LLC has fundamentally different tools available for compensating employees with equity than a C-corp does, one more factor worth weighing before converting, or before choosing an entity type at formation in the first place.
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