Equity Incentives in Partnerships and LLCs: Structuring Profits Interests, Capital Interests, and Options

Angela M. Stockbridge | Falcon Rappaport & Berkman LLP

Angela M. Stockbridge is an employee benefits and executive compensation attorney. Her experience in law firms, in-house legal departments, and HR consulting roles informs her perspective on matters including M&A deal diligence, complex 409A and 280G issues, plan compliance and corrections, and fiduciary governance.

Angela assists employers with the design and implementation of equity compensation plans and award agreements of restricted stock, phantom stock, and stock options that attract and retain top talent. She advises executives and human resources professionals on compliance matters relating to qualified and nonqualified retirement plans, group health plans, and voluntary benefits. Angela offers actionable advice to plan sponsors with compliance concerns under the Employee Retirement Income Security Act of 1974 (ERISA), the Health Insurance Portability and Accountability Act (HIPAA), and the Patient Protection and Affordable Care Act (ACA). She represents plan sponsors under audit by the Internal Revenue Service and Department of Labor, assists with Form 5500 returns, and submits plan correction applications to the IRS under the Employee Plans Compliance Resolution System.

Angela assists employers with professional employment organizations, benefits claims and appeals, and contracts with benefits vendors and third-party administrators. She acts as co-counsel on corporate transactions, especially those raising Section 280G issues or requiring representations and warranties insurance. Angela has advised start-ups, pre-IPO companies, privately held companies, and publicly traded Fortune 500 companies across the United States on an array of benefits matters.

Matthew E. Foreman | Falcon Rappaport & Berkman LLP

Matthew E. Foreman co-chairs FRB’s Taxation Practice Group and advises businesses on the tax effects of a variety of corporate transactions, including taxable and tax-free reorganizations, mergers, sales, and acquisitions. He designs and implements tax-efficient structures for U.S.-based businesses to expand abroad and invest in foreign joint ventures. Matt drafts tax memoranda and opinions on a variety of subjects, including tax-free reorganizations, tax-efficient return of capital to owners, Qualified Small Business stock, and various state pass-through entity taxes. He defends clients from audits from the IRS and various state tax agencies, including appealing audit determinations. Matt advises clients on a variety of tax issues related to cryptocurrencies, including initial coin offerings (ICOs), taxability of staking and air drops, and the imposition of Sales and Use taxes on the issuance of non-fungible tokens (NFTs). He drafts tax portions of Operating and Shareholder Agreements for businesses in different industries. Matt has extensive experience in a variety of SALT issues, especially New York State residency audits and state Sales and Use tax nexus issues post-Wayfair.

Matt started his career at Big 4 accounting firms where he advised Fortune 500 companies on a variety of tax matters. He is active in the New York City Bar Association, where he is the Secretary of the State and Local Tax Committee, as well as a Member of the Task Force on Digital Technologies and the Emerging Companies and Venture Capital Committee. He volunteers as a Helpline Volunteer with Savvy Ladies, a 501(c)(3) non-profit organization that brings financial planning education to women. Matt also hosts FRB’s podcast How Tax Works, where he unravels the complexities of tax law.

I. Why equity compensations in LLCs/partnerships are different | 1:00pm – 1:15pm

II. The four main incentive structures | 1:15pm – 1:30pm

• Profits interests
• Capital interests
• Options for LLC/partnership interests
• Phantom equity/unit appreciation rights

III. Profits vs. capital interests | 1:30pm – 1:45pm

IV. Mini-hypo to lock concepts | 1:45pm – 2:00pm

Break | 2:00pm – 2:10pm

V. Tax treatment map by award type | 2:10pm – 2:22pm

VI. Section 83 & 83(b) elections | 2:22pm – 2:34pm

VII. Section 409A & deferred compensation traps | 2:34pm – 2:46pm

VIII. Partner vs. employee status issues | 2:46pm – 2:58pm

IX. Drafting/implementation essentials | 2:58pm – 3:10pm