Structuring Waterfall Provisions in LLC and Partnership Agreements

Navigating Complex Distribution Structures, Minimizing Negative Tax Consequences

Recording of a 90-minute CLE/CPE webinar with Q&A


Conducted on Thursday, April 12, 2018

Recorded event now available

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Program Materials

This CLE/CPE webinar will guide corporate and tax counsel on the various methods of structuring waterfall distribution provisions in LLC and partnership agreements. The panel will examine a variety of economic and tax considerations in the provisions, such as approaches to drafting priority returns (internal rate of return vs. preferred return, compounding, time value of money and the use of Excel references), relationships between distribution and allocation provisions, tax distributions, profits interests, liquidation provisions, and the implications of new IRS partnership audit rules.

Description

In LLC and partnership agreements, the waterfall provisions are heavily negotiated clauses that describe the priority of cash and assets to be distributed among the entity’s members and partners.

The sequential order of the waterfalls is critical to ensuring the waterfall provisions work as intended and the distributions conform with the substance of the deal among the partners. Structuring waterfall provisions requires an understanding of payment priorities, economic terms, tax implications, and the impact of the new IRS partnership audit rules.

Counsel drafting and negotiating waterfall distribution provisions must ensure that the clauses are consistent with the economic arrangement of the parties. But, they must also ensure that the waterfall provisions are consistent with the partnership tax allocation agreement to avoid adverse tax consequences for the entity and its members or partners.

Listen as our authoritative panel discusses considerations and best practices for structuring waterfall provisions in LLC and partnership agreements, including the economic and tax impact of the clauses.

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Outline

  1. Waterfall provisions, generally
  2. Determining/drafting waterfall provisions
  3. Understanding economic arrangement of parties
  4. Priority returns
  5. Tailoring tax provisions to waterfalls
  6. Implications of new IRS partnership audit rules

Benefits

The panel will review these and other key issues:

  • What are the different types of waterfall provisions and when should each be used?
  • What are the key considerations and best practices for counsel drafting and negotiating waterfall provisions in LLC or partnership agreements?
  • What are the implications of new IRS partnership audit rules for tiered waterfall distributions?
  • What are some pitfalls to avoid when tailoring partnership allocation provisions to waterfall provisions?

Faculty

Browne, James
James R. Browne

Partner
Barnes & Thornburg

Mr. Browne has more than 30 years of experience in matters involving federal, state, and foreign taxes. He advises...  |  Read More

Schwartz, Phyllis
Phyllis A. Schwartz

Partner
Schulte Roth & Zabel

Ms. Schwartz focuses her practice on the structuring, formation and operation of private equity funds, including buyout...  |  Read More

Bridgers, Griffin
Griffin H. Bridgers

Atty
Hutchins & Associates

Mr. Bridgers' practice encompasses all areas of private wealth and family business. In addition to estate...  |  Read More

Other Formats
— Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. All formats include program handouts. To find out which recorded format will provide the best CLE option, select your state:

CLE On-Demand Video

$297

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CPE Not Available

$297