Why Do I Need A Phantom Share Agreement?

If your business is considering ways to motivate employees to remain with your company and excel in their roles, a Phantom Share Scheme might be the solution you’re looking for.

So, what exactly is it?

When you think about an Employee Share Option Plan (ESOP) or an Employee Share Scheme (ESS), you’ll understand that these involve granting or issuing shares to employees as a way to incentivise and reward them for their contributions (it’s important to note the differences between the two!).

This approach is often adopted by startups that may not have the financial capacity to provide substantial compensation to employees during the initial stages of the business.

So, how do phantom shares differ from these schemes?

How Do Phantom Shares Work?

To understand phantom shares, it’s helpful to compare them to an Employee Share Scheme (ESS).

With an ESS, actual shares are issued to employees as an incentive to stay with the company and produce results. However, with a Phantom Share Scheme, you’re essentially promising shares to employees based on any increase in your company’s share price.

The crucial distinction is that with a phantom share scheme, employees don’t receive actual ownership of shares – they enter into a contractual agreement linked to the performance of shares. It’s an effective method to motivate employees without diluting your equity.

They could be considered ‘notional shares’ since there’s no transfer of ownership. This is precisely why it can be complex and potentially risky.

Therefore, a Phantom Share Agreement is vital.

What Is A Phantom Share Agreement?

A Phantom Share Agreement outlines the specifics of a Phantom Share Scheme and addresses the associated risks. It should detail:

• The conditions of the scheme
• The method of payment
• Limitations of liability

As with any legal agreement, these terms will vary based on the nature of your scheme and the interests of your company. It’s prudent to consult with a lawyer who is experienced in drafting such agreements in line with your objectives.

Where Can I Get A Phantom Share Agreement?

Our legal team at Sprintlaw can assist you with drafting a Phantom Share Agreement that comprehensively covers the intricacies of your scheme.

Our package includes:

• A customised Phantom Share Agreement for your company
• Phone consultations with one of our expert lawyers to discuss the legal considerations specific to your situation
• A complimentary revision of the final draft we prepare for you

Need Help?

A Phantom Share Agreement must encompass all the pertinent terms and risks, given that the shares offered are not concrete assets. For clarity and legal assurance, Sprintlaw has a dedicated team of lawyers who can craft an Agreement tailored to your interests and collaborate with you to ensure you are satisfied with the outcome.

If you would like a consultation to explore your options, you can contact us at 0800 002 184 or [email protected] for a free, no-obligation chat.

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