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Phantom Stock Option Agreement

Phantom Stock Option Agreement Template for India

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Key Requirements PROMPT example:

Phantom Stock Option Agreement

"I need a Phantom Stock Option Agreement for our Series B technology startup in Bangalore, with a 4-year vesting schedule starting March 2025, cliff vesting in the first year, and special provisions for accelerated vesting in case of an IPO."

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Document background
The Phantom Stock Option Agreement is utilized when companies want to offer employees the economic benefits of stock ownership without diluting actual shareholding. This arrangement is particularly common in private companies, family-owned businesses, or subsidiaries of international corporations operating in India. The document comprehensively addresses grant terms, vesting schedules, valuation methodologies, and payment procedures while ensuring compliance with Indian regulatory requirements including the Companies Act, 2013, SEBI regulations, and tax laws. The agreement becomes especially relevant during talent retention initiatives, succession planning, or when creating long-term incentive programs. It provides a detailed framework for synthetic equity compensation while avoiding the complexities of actual share transfers and maintaining existing ownership structures.
Suggested Sections

1. Parties: Identification of the Company and the Grantee (employee/recipient of phantom stock units)

2. Background: Context of the agreement, including the company's phantom stock plan and purpose

3. Definitions: Key terms including Phantom Stock Units, Fair Market Value, Vesting Date, Exercise Price, etc.

4. Grant of Phantom Stock Units: Details of the number of units granted and basic terms of the grant

5. Vesting Schedule: Timeline and conditions for vesting of the phantom stock units

6. Valuation Mechanism: Method for determining the value of phantom stock units at various events

7. Exercise Rights and Procedures: Process for exercising vested phantom stock units and receiving payment

8. Payment Terms: Details of how and when payments will be made upon exercise

9. Tax Obligations: Tax implications and responsibilities of both parties

10. Termination Provisions: Effects of various types of employment termination on phantom stock rights

11. Confidentiality: Obligations regarding confidential information related to the agreement

12. Governing Law and Jurisdiction: Specification of Indian law as governing law and jurisdiction for disputes

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

Optional Sections

1. Change in Control Provisions: Special terms applying in case of company merger, acquisition, or similar events

2. Non-Competition and Non-Solicitation: Restrictions on competitive activities, used when company wants additional protection

3. International Tax Provisions: Additional tax clauses for non-resident employees

4. Clawback Provisions: Terms for recovering payments in case of misconduct or specific trigger events

5. Adjustment Provisions: Methods for adjusting phantom stock units in case of stock splits or similar corporate events

6. Exchange Control Compliance: FEMA compliance clauses for cross-border payments

7. Alternative Dispute Resolution: Mediation or arbitration procedures if preferred over court jurisdiction

Suggested Schedules

1. Schedule 1 - Grant Notice: Specific details of the grant including number of units, grant date, and vesting schedule

2. Schedule 2 - Vesting Conditions: Detailed performance or time-based conditions for vesting

3. Schedule 3 - Valuation Formula: Detailed methodology for calculating phantom stock unit value

4. Schedule 4 - Exercise Notice Template: Form to be used by Grantee when exercising phantom stock units

5. Schedule 5 - Tax Illustration: Examples of tax calculations and implications

6. Appendix A - Phantom Stock Plan: Copy or summary of the company's phantom stock plan

7. Appendix B - Consent Forms: Required regulatory or corporate consents and declarations

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

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Relevant legal definitions
Agreement
Applicable Law
Board
Cause
Change in Control
Company
Confidential Information
Exercise Date
Exercise Notice
Exercise Period
Exercise Price
Fair Market Value
Financial Year
Grant Date
Grant Notice
Grantee
Independent Director
Initial Public Offering
Liquidation Event
Notice
Permanent Disability
Phantom Stock Plan
Phantom Stock Units
Plan Administrator
Retirement
SEBI
Separation from Service
Shareholders
Subsidiary
Tax
Transfer
Valuation Date
Valuation Mechanism
Vested Phantom Stock Units
Vesting Date
Vesting Period
Vesting Schedule
Relevant Industries

Technology

Financial Services

Professional Services

Manufacturing

Healthcare

E-commerce

Consulting

Real Estate

Infrastructure

Education Technology

Biotechnology

Telecommunications

Relevant Teams

Human Resources

Legal

Finance

Executive Leadership

Corporate Strategy

Operations

Sales

Research and Development

Product Development

Information Technology

Business Development

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Chief Technology Officer

Senior Vice President

Vice President

Director

Senior Manager

Product Manager

Technical Lead

Senior Engineer

Key Account Manager

Department Head

Regional Manager

Principal Scientist

Research Head

Sales Director

Operations Manager

Industries
Companies Act, 2013: Governs corporate structure and management, including provisions related to share capital, employee stock options, and corporate governance requirements
Securities and Exchange Board of India Act, 1992: Regulates securities markets and may apply to phantom stock plans as they simulate equity ownership
Income Tax Act, 1961: Governs taxation of phantom stock benefits as they are treated as compensation/salary income under Section 17(1)
Foreign Exchange Management Act (FEMA), 1999: Relevant for cross-border transactions and when phantom stocks are offered to non-resident employees
Indian Contract Act, 1872: Provides the fundamental principles of contract formation and enforcement that apply to the phantom stock agreement
SEBI (Share Based Employee Benefits) Regulations, 2014: While not directly governing phantom stocks, provides relevant framework for employee benefit schemes linked to company shares
Industrial Disputes Act, 1947: Relevant for employee-employer relationships and potential disputes arising from phantom stock arrangements
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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