profits interest

profits interest
partnership interests (or interests of an entity that is treated as a partnership for tax purposes such as the membership interests of an LLC) can be divided into a capital interest and a profits interest. A profits interest is a right to receive a percentage of future profits (but not existing capital) from a partnership. A capital interest is an interest that would give the holder a share of proceeds if the partnership assets were sold at their fair market value and the proceeds distributed in a complete liquidation of the partnership.

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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