Phantom Equity Agreement Template for England and Wales

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Key Requirements PROMPT example:

Phantom Equity Agreement

"I need a Phantom Equity Agreement for our Series B startup to grant our new CTO 5% of phantom equity, vesting over 4 years starting March 2025, with a one-year cliff and acceleration provisions in case of a company sale."

Document background
Phantom Equity Agreements are increasingly used by companies in England and Wales as an alternative to traditional share schemes. These agreements provide a way to incentivize key employees and align their interests with company success without diluting actual shareholding or triggering complex securities regulations. The Phantom Equity Agreement defines the terms of synthetic equity rights, including grant size, vesting conditions, valuation methods, and payment triggers. It's particularly useful for private companies wanting to offer equity-like incentives while maintaining their existing shareholder structure.
Suggested Sections

1. Parties: Identification of the company and the participant receiving phantom equity rights

2. Background: Context of the agreement and purpose of the phantom equity scheme

3. Definitions: Key terms including Phantom Units, Vesting Period, Exit Event, Fair Market Value

4. Grant of Phantom Units: Number of units granted and their initial reference value

5. Vesting Provisions: Vesting schedule and conditions for rights to become exercisable

6. Valuation Mechanism: Method for determining the value of phantom units

7. Payment Terms: Timing and method of payments upon vesting or exit events

8. Termination Provisions: Effects of employment termination on phantom rights

Optional Sections

1. Change of Control Provisions: Special terms applying in case of company sale or merger

2. Anti-dilution Protection: Provisions protecting value from share splits or consolidations

3. Clawback Provisions: Company's right to recoup payments in specific circumstances

4. International Tax Provisions: Special terms for cross-border tax implications

Suggested Schedules

1. Vesting Schedule: Detailed timeline and conditions for vesting of phantom units

2. Valuation Methodology: Detailed calculation methods and examples for unit valuation

3. Notice Forms: Template forms for exercise notices and other communications

4. Tax Treatment Summary: Overview of tax implications and reporting requirements

5. Worked Examples: Practical examples of payment calculations in various scenarios

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Relevant legal definitions
Clauses
Relevant Industries
Relevant Teams
Relevant Roles
Industries

Employment Rights Act 1996: Primary legislation governing employment rights in England and Wales, relevant for structuring phantom equity as part of employment compensation

Equality Act 2010: Ensures the phantom equity scheme doesn't discriminate against protected characteristics in its terms and implementation

National Minimum Wage Act 1998: Must be considered to ensure any deductions or arrangements related to phantom equity don't result in effective pay below minimum wage

Income Tax (Earnings and Pensions) Act 2003: Governs the tax treatment of phantom equity payments as employment-related securities

Financial Services and Markets Act 2000: Regulates financial instruments and ensures compliance with financial services regulations for phantom equity schemes

Financial Services and Markets Act 2000 (Financial Promotion) Order 2005: Controls how phantom equity schemes can be promoted and communicated to potential participants

Companies Act 2006: Provides framework for corporate governance and valuation methods relevant to phantom equity schemes

UK GDPR: Regulates the processing of personal data in connection with phantom equity scheme administration

Data Protection Act 2018: UK's implementation of data protection requirements, relevant for handling participant information

Unfair Contract Terms Act 1977: Ensures terms in phantom equity agreements are fair and enforceable under English law

Consumer Rights Act 2015: May be relevant if phantom equity is offered to individuals who qualify as consumers

Common Law Contract Principles: Fundamental principles of contract formation, consideration, and enforcement under English common law

National Insurance Contributions Regulations: Governs NIC treatment of phantom equity payments and related benefits

Accounting Standards: Relevant UK accounting standards for recording and reporting phantom equity schemes in company accounts

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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