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

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
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Monica Borrell Entrepreneur
CEO and Founder at Cardsmith
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
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Mike Moyer Entrepreneur • Advisor
Managing Director at Lake Shark Ventures, LLC
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!


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