05/15/2024

FASB Issues Updated Guidance on Profits Interest Awards

The updates were issued on March 21, 2024

Although the concept of profits interest awards for equity compensation has been around for decades, popularity and widespread use has certainly increased in recent years. 

In response to some confusion around when profits interest awards should be accounted for under stock compensation rules, the Financial Accounting Standards Board (FASB) issued updated guidance. On March 21, 2024, updates were rolled out which included illustrative examples to help people better understand the rules. Read on for a brief overview, as well as highlights from the updated guidance.

What Are Profits Interest Awards?

Partnerships and limited liability companies (LLCs) use profits interest awards to incentivize exceptional performance. Under these plans, participants may be granted an equity interest in a company’s future profits, but not any current capital. Profits interest awards may be given to employees, as well as contractors and other “non-employees” in exchange for goods or services. 

Please select this link to read the complete article from OSAP Mission Partner Clark Schaefer Hackett (CSH).