Many Latin American founders launch their startups as LLCs. It’s fast, inexpensive, and flexible. But that initial choice often brings complex decisions later—especially when it comes time to grant equity to the team.
At Grow—PAG Law’s platform, designed to support founders from incorporation through Series A—we’ve seen the same pattern again and again: founders understand how a SAFE works, but they don’t know how to grant equity from an LLC.
That’s where unit plans come in.
What’s a Unit Plan?
In an LLC, you don’t issue shares (as you would in a C-Corp)—you issue units. And unit incentive plans are the key legal mechanism to bring talent on board without paying full-market salaries.
These units can be structured as:
- Common units (similar to common stock), or
- Profits interests, which can offer significant tax advantages—if done correctly.
A proper unit plan rests on three core documents:
- The Operating Agreement of the LLC
- The Equity Incentive Plan
- Individual grant agreements for each recipient
How It Works
- Vesting: Most plans follow a vesting schedule—typically 4 years with a 1-year cliff. Acceleration may be triggered by a sale of the company or termination without cause.
- Repurchase Rights: If a recipient leaves before fully vesting, the LLC typically retains the right to buy back unvested units at a nominal price.
- Transfer Restrictions: Units can’t be sold or transferred without company approval. There’s usually a right of first refusal in favor of the company.
- Tax Strategy: If structured properly, profits interests are taxed as capital gains instead of income. But the 83(b) election must be filed within 30 days of the grant—miss that deadline and the tax benefit disappears.
Advice for Latin American Founders
Many Latin American founders are unfamiliar with these issues because equity isn’t typically used in our home markets. But if you’re raising capital in the U.S., a clean, well-structured cap table is non-negotiable.
At Grow, we routinely see these common missteps:
- Misstructured profits interests: Done wrong, they can result in unnecessary tax exposure for your team.
- Missing the 83(b) election: It’s a simple form—but failing to file it on time can double the recipient’s tax burden.
- Failing to update the Operating Agreement: Issuing units without revising your LLC’s operating agreement creates legal conflicts—and sets off red flags during due diligence.
What Does Grow Offer?
Grow streamlines and automates this entire process:
- Templates vetted and approved by PAG Law attorneys
- Structures tailored for growth-stage LLCs
And when you’re ready to convert to a C-Corp to raise venture funding, Grow offers a clean, founder-first transition plan.
Conclusion
LLC unit plans are powerful tools—but implemented poorly, they can complicate your cap table, scare off investors, and trigger unexpected taxes for your team.
That’s exactly what we built Grow to deliver.
Disclaimer: This article is for informational purposes only. It does not constitute legal or tax advice. For specific guidance, consult a qualified attorney and accountant in your jurisdiction.
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