Phantom equity plan sample 2025

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5 Tips for Creating a Phantom Stock Plan Understand what you are and arent offering. Phantom stock is essentially a contract in which you promise to pay cash to an employee once certain conditions are met. Set a proper valuation. Create your shares. Decide how to award stock. Set a reward schedule.
Key takeaways Phantom stock payouts are taxed as ordinary income, unlike actual stock which may benefit from capital gains rates. Phantom stock plans can be a valuable method for companies seeking to tie incentive compensation to increases or decreases in company value without awarding actual shares of company stock.
Phantom stock unit payouts are taxable to the employee at ordinary income tax rates (generally higher than capital gains tax rates). That differs from most forms of corporate equity as well as LLC equity such as profits interest plans, which when handled correctly enable the recipient to pay capital gains tax rates.
Phantom stock example For example, if a company grants an employee 100 phantom stocks with a value of $10 per share, then the employees total bonus would be $1,000 (100 shares x $10 per share).
Although partnerships do not have common stock, as noted above, entities taxed as partnerships, including LLCs, can implement plans very similar to phantom stock plans. In the case of a partnership, however, the value of a phantom stock unit is tied to partnership equity value rather than common stock value.
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Phantom stock plans can be a valuable method for companies to provide their key employees with meaningful incentive compensation without awarding actual shares of company stock. Usually, the award is for a specific number of units, or phantom shares, which track the price of the companys actual shares.

phantom stock agreement