Partnerships & Investors
How are profits shared?
Usually pro-rata to equity, sometimes with preferred returns or waterfalls.
Practical Explanation
The simplest split is pro-rata: 60/40 owners share 60/40 of distributions. More complex deals use waterfalls — the investor gets a preferred return (e.g., 8% on capital) before remaining profits split per ownership. Operators sometimes get a 'promote' (extra upside) after investor returns are met.
Real-World Example
Investor gets the first 8% return on capital. Remaining profits split 70/30 between investor and operator.
Typical cash required
N/A — this is about how profits flow once earned.
Experience required
N/A.
Advantages
- ✓Aligns capital and operator incentives
- ✓Flexible — many possible structures
Risks
- !Complexity invites disputes
- !Operator may be diluted in down years
Frequently Asked Questions
What's a 'promote'?
Extra share of upside paid to the operator after the investor hits a preferred return — common in real estate, growing in operating-business deals.
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