Priority profit share (PPS) meaning

Priority profit share (PPS) is the contractual allocation of partnership profits to the general partner (GP) in a fund structured as a limited partnership. In practice it ranks at the top of the distribution waterfall, paid after reserving for the fund’s expenses and liabilities and before any distributions to limited partners or carried interest. PPS is commonly used to fund the management function and is typically applied to satisfy or offset the management fee, in whole or in part. It usually accrues during the fund term and is payable only to the extent distributable profits are available, with any shortfall dealt with as the limited partnership agreement (LPA) provides. It is distinct from carried interest and is not a preferred return to investors. “Priority profit share” is not defined in legislation or case law; it is a market term used in LPAs across England & Wales, Scotland, Northern Ireland and Ireland (including Irish ILPs), with drafting variations. Key issues include basis and quantum, timing and reserves, fee offsets, and treatment on termination or insufficient profits, noting potential tax differences compared with a fee.