I'm still not clear on how to treat this.
You need to pull and post the relevant portions of the OA, including the allocation provisions, distribution provisions and the cap table at the back, which speaks to what everyone contributed.
In isolation, if we look at what you posted, we have B and C [and let’s also say A] contributed capital, but they have a 0% profits interest. On one level, that makes very little sense. They have no upside opportunity. The only possible upside you mention relates to A, where he will be paid “on the back-end.”
What you likely have here is the following: On a value basis, capital contributions are pro-rata between the GP’s and the LP’s. “General Partners” kick-in $30k for an initial 30% interest. Investors (Limited Partners) kick-in $70k for an initial 70% interest. All the investors can lose is their capital. The GP’s, or at least Mr. A, bears the biggest risk in that he guaranteed the entire loan. I am not sure if B&C indemnified A for a portion of the loan or not.
If things are set up this way, what usually happens is that allocations and distributions go pro-rata, based on the 30/70 split. There might also be a provision that calls for a preferred return (on capital, not of capital), of X% of unreturned capital to the investor LP’s. This usually involves a special allocation of profit (or gross income) to the investor LP’s.
At some point, the idea is that the investors have had all of their invested capital returned to them. At which point, the 30/70 flips the other way. This is where A, B and C realize their upside potential. Often, the investors get their unreturned capital returned to them by way of some type of liquidity/sale event. And once their previously unreturned capital is returned, whatever cash is left gets distributed 70/30 in favor of A, B and C. Because of this flip, commonly referred to as a “promoted” interest, you have a carried interest for A, B and C.
Here are some numbers:
GP’s contribute $30k for 30%.
LP’s contribute $70k for 70%.
Pretend all $100k is spent and all capital accounts are $0.
Then we sell the project for $150k.
The first $100k of profit goes $30k to GP’s and $70k to LP’s, to get everyone back to where they started. We distribute the $100k accordingly, bringing capital accounts back down to $0k. At this point, the investors have been repaid their capital. They have no “unreturned capital” at this point. Now the flip comes into play. With respect to the remaining $50k of cash, A, B and C collectively get 70% of it. The investors get 30% of it.
There are a wide variety of lifetime scenarios that could be at play. If this is rental property, you might have cash flow, and distributions of that cash flow, over time. It might also be that if this is something like a condo complex, individual units are sold, which provide cash flow, that might get distributed. In other words, it’s possible that initial unreturned capital gets whittled down over time, such that a back-end large sale event isn’t the sole transaction that gets capital/cash back to the investors.
It’s also possible that the economic arrangement isn’t pro-rata. It really might be that GP’s put in $30k, but they only share in losses once the LP’s capital accounts are driven to zero, or to the lowest level possible. But that’s not too typical. If I’m an LP, and capital contributions were pro-rata at inception, and then we have losses, I’d want some of those losses to be borne pro-rata from the get-go and until the flip happens, assuming the flip does happen.
What I haven’t addressed is A’s guarantee situation. If A really does have a 5% capital interest, and the cap table says he contributed nothing, there might be a taxable capital shift from B and C to A (or from ALL other partners to A). But I don’t know if that’s the intent. It’s likely not the intent of the LP’s. Thus, it might just be that the cap table ascribes some value to A’s guarantee, that makes the OA cap table work. In other words, B and C put in $20k, A is deemed to contribute value of $5k and the LP’s put in $70k. I’m not sure. If that is the case, then we simply have a forward 704c contribution by A, assuming we agree not to tax it, and that there is no shift, and it will be respected as a contribution of “property.”
In a nutshell, I think there’s way more to this situation that the way you’re framing it up. See my first sentence above.