In some contexts, the way that profits of a project or investment are to be split between two between two partners depends on the level of profits that arise. For example, in private equity, deals are sourced and arranged by a project sponsor (initiator, or General Partner, “GP”). The GP will put in a relatively small proportion of the equity capital, with the majority of the equity provided by several external partners (Limited Partners, or “LPs”). In addition, the GP will take a higher share of the profits if the project is highly profitable, whilst at lower levels of profitability, the profits will be shared more equally.
For example, the following shows the parameters for a case where the GP provides 10% of the capital, whilst its share of the profits increases from 10% through to 40% depending on the level of profits (defined by three profits hurdles)