Accounting · Equity

What are the pros and cons on the use of "profits and interest"?

Louis Monoyudis Chief Operating Officer at Outer Places

August 14th, 2014

We are examining several different options around employee/founders participation in the growth of the company, and "profits and interest" (we are an LLC) has come up. What are the pros and cons in your experience?
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Monica Borrell CEO and Founder at Cardsmith

August 14th, 2014

I recently did an operating agreement that allows contributors to my startup to participate in a Grunt Fund (aka Slicing Pie) in lieu of taking a salary. I did a lot of work with my CPA, my attorney and a hired tax attorney to decide on the best way to do this. We looked at the C-corp, S-corp, LLC with profits interest only, LLC with capital and profits interests only. We settled on the LLC with profits interest for my case, but what I learned is that it isn't a simple decision. I needed to really define my specific goals on what I was trying to achieve and look at all models with pros-and-cons of each.  I'd be happy to share details with you offline -- if you want to discuss message me.  

Mike Moyer

August 14th, 2014

I created the Grunt Fund (www.slicingpie.com) that Monica mentions. I often recommend profit interest instead of equity. This allows certain founders to maintain control while allowing others to reap the rewards when they are reaped!