Partnership Profits Interests: What attorneys should know

Joshua S. Gelfand
Joshua S. Gelfand
Troutman Pepper Hamilton Sanders LLP

Josh focuses his practice on advising public and private companies, and private equity clients, in financial and strategic merger and acquisition transactions and executive compensation matters, as well as assisting asset management clients with the structuring, implementation, and administration of carried interest and “phantom” carried interest programs.

Tom Gray
Tom Gray
Troutman Pepper Hamilton Sanders LLP

Tom is a partner in the firm’s Tax practice. With a background in both accounting and law, Tom focuses his practice on the tax aspects of corporate and partnership transactions, including mergers and acquisitions, reorganizations, restructuring, spin-offs, and equity and debt financings. Additionally, Tom advises clients on the special tax considerations related to regulated investment companies and real estate investment trusts.

On-Demand: August 22, 2024

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2 hour CLE
Tuition: $195.00
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Program Summary

Session I - Understanding and Structuring Partnership Profits Interests - Joshua S. Gelfand

This session will provide a general synopsis of profits interests. We will cover what a profits interest is, how it differs from a capital interest, and what is needed for a partnership interest to qualify as a profits interest under the “safe harbor” provided in IRS Revenue Procedures 93-27 and 2001-43. In addition, we will discuss common structures for issuing profits interests and the potential benefits (including tax benefits) and tradeoffs for both issuers and individual grantees of profits interests as compared to other forms of incentive equity (e.g., stock options).

We will also touch on the typical documentation for granting profits interests (i.e., grant agreements, partnership agreements and, potentially, profits interest plan documents), as well as common provisions like vesting, forfeiture, distribution rights, and repurchase rights.

Key topics to be discussed:

  • Understanding profits of interests
  • Granting and structuring profits interests
  • Documentation
  • Tax treatment of profits interest

Session II - Compliance and Regulatory Issues, & Risks and Pitfalls - Thomas Gray

This session will explore various issues regarding profits interests. We will delve into the drafting of partnership agreements, common structures of partnership agreements, how to incorporate the concept of profits interests, and how the partnership agreement interacts with the grant agreements. We will review common errors in granting profits interests, how to avoid those errors and the misconceptions that some people have with respect to the tax implications of profits interests. We will then review whether any filings need to occur with respect to the issuance and receipt of profits interests.

Key topics to be discussed:

  • Drafting of partnership agreements and incorporating profits interests
  • Common mistakes that can occur with respect to issuance of profits interests
  • Filings that are applicable to the issuance and receipt of profits interests

This course is co-sponsored with myLawCLE.

Closed-captioning available

Speakers

Joshua S. Gelfand_FedBarJoshua S. Gelfand | Troutman Pepper Hamilton Sanders LLP

Josh focuses his practice on advising public and private companies, and private equity clients, in financial and strategic merger and acquisition transactions and executive compensation matters, as well as assisting asset management clients with the structuring, implementation, and administration of carried interest and “phantom” carried interest programs.

Josh advises clients on the compensation, benefits, and employment-related aspects of domestic and international merger, acquisition, and finance transactions for companies and private equity clients. He also assists clients with the design, implementation, and administration of equity and incentive compensation plans, including carried interest and “phantom” carried interest plans, the negotiation of executive employment, severance, and other compensation arrangements, and public disclosures relating to executive compensation.

 

Tom Gray_FedBarTom Gray | Troutman Pepper Hamilton Sanders LLP

Tom is a partner in the firm’s Tax practice. With a background in both accounting and law, Tom focuses his practice on the tax aspects of corporate and partnership transactions, including mergers and acquisitions, reorganizations, restructuring, spin-offs, and equity and debt financings. Additionally, Tom advises clients on the special tax considerations related to regulated investment companies and real estate investment trusts.

Tom’s experience also includes advising domestic and offshore clients on cross-border tax matters; representing hedge funds on fund structuring and the tax consequences of investments; advising private equity fund investors, including university endowments; negotiating, reviewing, and drafting the tax aspects of stock and asset purchase agreements, partnership agreements and credit agreements; and advising clients on the restructuring of financially troubled entities.

In addition, Tom is experienced in the special tax considerations affecting hedge funds, private equity funds, regulated investment companies, and real estate investment trusts.

Agenda

Session I – Understanding and Structuring Partnership Profits Interests | 12:00pm – 1:00pm

  • Understanding Profits Interests: What they are, how they differ from capital interests, and the requirements to qualify under the “safe harbor” under IRS Rev. Procs. 93-27 and 2001-43
  • Granting and Structuring Profits Interests: Common Structures (including tiered partnerships), what types of entities may grant profits interests, benefits and tradeoffs of profits interests vs. other forms of incentive equity
  • Documentation: Common terms in profits interest plans and grant agreements, including vesting, forfeiture, distribution rights, and repurchase rights
  • Tax Treatment of Profits Interest: How tax treatment differs from other forms of incentive equity; Protective section 83(b) elections; How profits interest ownership can impact and affects employment status

Break | 1:00pm – 1:10pm

Session II – Compliance and Regulatory Issues, & Risks and Pitfalls | 1:10pm – 2:10pm

  • Drafting of partnership agreements and incorporating profits interests
  • Common mistakes that can occur with respect to issuance of profits interests
  • Filings that are applicable to the issuance and receipt of profits interests
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