How Should a Syndicate Manager Take Title to its Carried Interest?

Q. My syndicate is structured with 2 classes of Members. Class A is for cash-paying investors. Class B is reserved for management. If I am participating in management and earning Class B interests, how should I take title to them?
A. There are tax reasons you may want to take your class B Interests separate from your management interests (as your earnings from the Manager LLC will be taxed at ordinary income rates and your Class B earnings may be taxed at capital gains rates), so you should speak to your CPA about this before making your decision. Additionally, if the Manager is removed, having it also serve as the Class B Member may give your investors a stronger argument about also removing your Class B Interests. If your management interests and Class B Interests are taken separately, it may be much harder for this to happen.
Additionally, if you have an asset protection entity, you may wish to use it to take title to your Class B Interests, which carry little liability by themselves. Conversely however, you would never want to use your asset protection entity to take title to your interests in the management entity as those interests carry significant liability and any assets associated with that entity are subject to attachment if the manager were to be sued.
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About Syndication Attorneys

We are NOT your stereotypical law firm. We don’t believe in simply taking your money, handing you a stack of technical, often-incomprehensible legal documents and then bidding you good luck and good-bye. At Syndication Attorneys PLLC, we are committed to your success – not just with the project at hand, but your continuing success in business and investing. We are your long-term legal team.

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