A profits interest is an LLC equity grant entitling the holder to a share of future appreciation and profits, but not existing capital. The holder is treated as a partner for tax purposes, files an 83(b) election within 30 days to lock in tax treatment, and receives capital-gains-eligible upside compensation more tax-favorable than phantom equity or cash bonuses. It is the LLC equivalent of founders stock or restricted stock at a C-corp and a structural choice that allows LLCs to provide equity-comp on terms similar to stock-corps.
The structural mechanic: