Phantom Equity Agreement Template for Hong Kong

The Phantom Equity Agreement serves as a crucial instrument for companies operating in Hong Kong who wish to incentivize key employees, contractors, or advisors without diluting actual shareholding. This document type is particularly valuable for private companies, startups, and organizations that either cannot or prefer not to issue real equity. The agreement details the participant's rights to receive cash payments based on the company's value appreciation, typically triggered by specific events such as a company sale or IPO. The Phantom Equity Agreement must comply with Hong Kong's regulatory framework, particularly employment, securities, and tax laws. It includes essential provisions regarding grant terms, vesting schedules, valuation methods, payment conditions, and termination scenarios, while addressing tax implications and confidentiality requirements.

1. Parties: Identifies the company granting the phantom equity and the participant receiving the rights

2. Background: Sets out the context of the agreement and the company's intention to grant phantom equity rights

3. Definitions and Interpretation: Defines key terms used throughout the agreement, including 'Phantom Units', 'Fair Market Value', 'Vesting Period', and other relevant terms

4. Grant of Phantom Equity: Details the specific grant of phantom equity units, including quantity and grant date

5. Vesting Provisions: Specifies the vesting schedule and conditions that must be met for phantom equity rights to vest

6. Valuation Methodology: Establishes the method for calculating the value of phantom equity units

7. Payment Terms: Details when and how payments will be made upon triggering events

8. Tax Provisions: Addresses tax implications and responsibilities for both parties

9. Termination Provisions: Specifies what happens to phantom equity rights upon various termination scenarios

10. Confidentiality: Establishes confidentiality obligations regarding the agreement and company information

11. Assignment and Transfer Restrictions: Prohibits or limits the transfer or assignment of phantom equity rights

12. Governing Law and Jurisdiction: Specifies Hong Kong law as governing law and jurisdiction for disputes

13. General Provisions: Standard boilerplate provisions including notices, amendments, and entire agreement