Business and tax attorneys draft partnership agreements, including LLC agreements. These agreements often contain cash waterfall provisions that are designed to cause cash to be distributed a certain way until certain investors achieve a designated internal rate of return. For example, partnership waterfall provisions may provide that available cash is distributed as follows:
First, to A until A has achieved an 8% internal rate of return (IRR);
Second, 10% to B and 90% to A until A has achieved a 15% IRR;
The balance, 20% to B and 80% to A.