Set out your phantom share scheme in a clear written agreement

The commercial idea is only part of the picture. A phantom share scheme can create confusion if the written terms do not clearly deal with who is eligible, what the notional entitlement actually represents, when a payout is triggered, and what happens if a participant leaves early. A proper agreement helps translate the incentive concept into workable rules. That is especially important where payments may depend on a sale event, performance milestone, valuation method, or board discretion, because those points often become contentious if they are left vague.

These agreements commonly deal with participant eligibility, the number or value of phantom units, vesting or milestone conditions, payout triggers, valuation methodology, leaver treatment, confidentiality, and any discretion the company retains over administration. Some schemes are tied to an exit event, while others use profit or performance measures. The agreement should also make clear that the participant is not receiving actual shares or shareholder rights unless separate steps are taken. That distinction matters because phantom equity is usually about economic upside rather than legal ownership or voting power.

The drafting usually turns on how you want the incentive to work in practice. Key issues include whether the scheme is for employees only or also contractors, whether value is linked to company growth, profit, or a future sale, and whether payouts vest over time or on milestones. It also matters whether you want broad discretion to amend or administer the scheme, or more fixed rules. If your business already has shareholder arrangements or other incentive documents, those may need to be considered so the phantom scheme fits alongside them sensibly.

A template may help you see the general shape of the document, but it often misses the commercial details that make the scheme workable for your business. For example, a generic form may not deal properly with your chosen valuation approach, the treatment of bad leavers, or whether a payout is tied to an exit, a funding event, or internal performance metrics. If those points are not aligned with how you actually plan to run the scheme, the agreement can create more uncertainty than clarity. Tailored drafting is usually most useful where incentives are central to retention.

Timing depends on how settled the commercial terms are when the matter starts. If you already know who the scheme is for, what triggers a payout, and how value should be measured, the drafting is usually more straightforward. If those points are still evolving, there may be more back and forth before the agreement can be finalised. Once the key terms are confirmed, we prepare the agreement and explain the main clauses, including any areas where you may need separate advice before rolling the scheme out to participants.

Just submit an enquiry via this page or click the 'get started' button on our website to submit an enquiry. After you've submitted an enquiry, one of our legal consultants will review your enquiry within 1 business day and get in touch to get a better idea of exactly what you are looking for.

Then your legal consultant will send through an email with a bit more information about the services you need, along with a fixed fee quote setting out costs, scope of the service and timing. Have a read through it, and if you're happy with the scope, you can accept and sign our engagement letter online - easy!

Once you've formally accepted, we'll connect you with a specialist lawyer and they will work with you to complete your project. They will contact you by email or phone if they need to get in touch.

Sprintlaw works on fixed-fee pricing wherever possible, so you can review the scope and cost before you decide whether to proceed. For the Phantom Share Agreement service, pricing starts from $900.00.

After you enquire, a legal consultant will confirm what is included, the expected timing and whether any extra work is needed before you engage us.

We operate completely online, which means we can help you wherever you are in New Zealand. We have office spaces in Sydney, and in Melbourne, but our use of technology allows our team members to work remotely from around the world. Our legal team are mostly based in Sydney, Melbourne, Brisbane and Perth. We also have a London office for Sprintlaw UK.

Our legal team is made up of experienced lawyers, who are specialists in various areas of law and hold an Australian legal practising certificate. None of our Sprintlaw lawyers are New Zealand qualified lawyers and they do not currently hold a New Zealand practising certificate.

They provide legal services working remotely from Australia via our 'legal consultancy' model, through which (under section 6 and section 35 of the New Zealand Lawyers and Conveyancers Act 2006) our Australian legal team are permitted to provide legal services to New Zealand businesses provided they do not provide services in certain 'reserved' areas of law. You can read our FAQ page to learn a bit more about our 'legal consultancy' model.

Given the strong similarities between Australian and New Zealand law, and the areas of law in which we practice (being small business and startup law), we do not view the fact that our lawyers have not qualified in New Zealand as having any substantive impact on the quality of our service. We are committed to ensuring that we provide high quality, affordable legal services to all our New Zealand clients.

Our legal team have all trained at leading firms, but have left the traditional corporate law world to join us on our mission to create a new and better way of delivering legal services. They have specialist expertise in technology law, intellectual property law, contract drafting and review, corporate law and commercial law.