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Your executive compensation associate should be able to
Think of them as a stand in for stock options. Concept is that you want to incentivize employees to grow your business. One way to do that is through equity. If the company is worth XYZ dollars when they are onboarded - they (typically) shouldn’t participate in that XYZ because they weren’t a part of growing the company to that level. The Incentive Unit would allow them to participate in any sale or other proceeds in EXCESS of XYZ.
There are other wrinkles (taxes, sometimes you do want them to participate in the first XYZ, vesting, etc) - but the above is the forest level concept.
If you can find a good CLE on PE portco waterfalls that would be a great place to understand more of the nitty gritty.
Subject Expert
Depends, but those are usually profits interests that will vest and get paid out on the sale and get capital gains treatment. But, yeah, check with the EBEC folks.