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A profits interest is a right to receive a percentage of future profits (but not existing capital or accumulated profits) from a partnership.
Example 1: Profits interest ? Let's say that the company is worth $1,000,000 and has $50,000 in annual profits. A worker with a 10% interest grant doesn't have any interest in the company's current market value, but they do have a 10% interest in annual profits, which equates to $5,000.
A net profits interest is an agreement that provides a payout of an operation's net profits to the parties of the agreement.
A capital interest is a type of equity commonly issued by LLCs, under which the member of the LLC contributes capital to the LLC and has an ownership interest. Unlike a capital interest, profits interests do not represent ownership in the LLC.
What is net profit? Net profit is the amount of money your business earns after deducting all operating, interest, and tax expenses over a given period of time.