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Phantom Stock Agreement Template for England and Wales

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Key Requirements PROMPT example:

Phantom Stock Agreement

"I need a Phantom Stock Agreement for our UK-based technology startup to grant 1,000 phantom stock units to our new Chief Technology Officer, with quarterly vesting over 4 years starting from March 1, 2025, and including special provisions for acceleration upon a company sale."

Document background
A Phantom Stock Agreement is commonly used by private companies in England and Wales who wish to provide equity-like incentives without diluting actual shareholding. This document establishes a contractual right to future cash payments based on the company's value appreciation, typically used for key employee retention and motivation. The agreement needs to comply with UK employment law, tax regulations, and financial services legislation, making it a complex but valuable tool for companies unable or unwilling to issue actual equity. It includes detailed provisions on grant terms, vesting conditions, valuation methodologies, and payment mechanisms.
Suggested Sections

1. Parties: Identification of the company and participant

2. Background: Context of the phantom stock plan and its purpose

3. Definitions: Key terms including Phantom Stock Units, Vesting Period, Valuation Date

4. Grant of Phantom Stock Units: Number of units granted and terms of grant

5. Vesting Provisions: Vesting schedule and conditions

6. Valuation Mechanism: Method for calculating phantom stock value

7. Payment Terms: Timing and method of payments

8. Termination Provisions: Effect of employment termination

Optional Sections

1. Change of Control Provisions: Treatment of phantom stock in case of company sale/merger - use for companies considering potential exit events

2. Non-Competition Clauses: Restrictions on participant's activities - use for senior employees or when protecting company interests

3. International Tax Provisions: Special tax considerations for international participants - use when participants are based in multiple jurisdictions

Suggested Schedules

1. Vesting Schedule: Detailed breakdown of vesting dates and conditions

2. Valuation Formula: Detailed calculation methodology for phantom stock value

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

4. Tax Treatment Summary: Overview of tax implications for participant

Authors

Alex Denne

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

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Relevant Industries
Relevant Teams
Relevant Roles
Industries

Employment Rights Act 1996: Primary UK legislation governing employment rights and obligations, relevant for structuring phantom stock benefits as part of employment compensation

Equality Act 2010: Ensures the phantom stock plan complies with anti-discrimination laws and provides equal opportunities to eligible employees

National Minimum Wage Act 1998: Must be considered to ensure phantom stock payments don't interfere with minimum wage calculations and compliance

Income Tax (Earnings and Pensions) Act 2003: Key legislation governing the taxation of employment-related securities and phantom shares

Financial Services and Markets Act 2000: Regulatory framework for financial services and markets, particularly relevant if the company is in the financial sector

Financial Services Act 2012: Updates and amendments to financial services regulation, including provisions affecting employee compensation schemes

Companies Act 2006: Primary legislation governing company operations, including directors' duties and corporate governance relevant to phantom stock arrangements

Unfair Contract Terms Act 1977: Ensures terms in the phantom stock agreement are fair and enforceable under English law

UK GDPR: Data protection regulations governing the handling of personal data in phantom stock plan administration

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

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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