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Phantom Equity Agreement for Singapore

Phantom Equity Agreement Template for Singapore

A comprehensive legal agreement governed by Singapore law that establishes a synthetic equity compensation arrangement between a company and its employees or contractors. The document outlines the terms and conditions for granting phantom equity units, which provide the economic benefits of share ownership without actual share issuance. It includes detailed provisions for unit valuation, vesting schedules, payment terms, and tax implications, all structured within Singapore's legal framework and compliant with local employment and securities regulations.

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What is a Phantom Equity Agreement?

The Phantom Equity Agreement is a strategic tool used by Singapore-based companies to attract, retain, and motivate key employees without diluting actual shareholding. This document is particularly valuable for private companies, startups, and organizations that want to offer equity-like incentives while maintaining their existing share structure. The agreement details the mechanism for granting phantom equity units, which mirror the economic benefits of real shares but are settled in cash. It includes essential provisions for valuation methodologies, vesting conditions, payment triggers, and tax treatment, all aligned with Singapore's regulatory requirements. The Phantom Equity Agreement is typically implemented as part of a broader compensation strategy and requires careful consideration of corporate, employment, and tax implications under Singapore law.

What sections should be included in a Phantom Equity Agreement?

1. Parties: Identifies the company issuing the phantom equity and the recipient employee/contractor

2. Background: Sets out the context and purpose of the phantom equity grant

3. Definitions and Interpretation: Defines key terms including 'Phantom Units', 'Vesting Date', 'Valuation', 'Exit Event', etc.

4. Grant of Phantom Equity Rights: Details the number of phantom units granted and their basic terms

5. Vesting Schedule: Specifies when and how the phantom units vest over time

6. Valuation Mechanism: Defines how the phantom units will be valued, including calculation methods

7. Payment Terms: Specifies when and how payments will be made for vested phantom units

8. Tax Provisions: Addresses tax implications and responsibilities

9. Confidentiality: Protects company information accessed through the phantom equity arrangement

10. Termination: Details what happens to phantom units upon various termination scenarios

11. General Provisions: Standard contract clauses including governing law, notices, and amendments

What sections are optional to include in a Phantom Equity Agreement?

1. Multiple Classes of Phantom Units: Include when different types of phantom units with varying rights are being issued

2. International Compliance: Required when participant is based outside Singapore

3. Non-Competition and Non-Solicitation: Include for senior employees or when significant phantom equity is granted

4. Drag-Along and Tag-Along Rights: Include when phantom equity holders should have rights similar to actual shareholders

5. Dispute Resolution: Optional section for specific arbitration or mediation procedures

6. Adjustment Provisions: Include when specific company events might affect phantom unit calculations

What schedules should be included in a Phantom Equity Agreement?

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

2. Schedule 2 - Vesting Schedule: Detailed breakdown of vesting dates and conditions

3. Schedule 3 - Valuation Methodology: Detailed formula and procedures for calculating phantom unit value

4. Schedule 4 - Notification Forms: Standard forms for exercising rights or providing notices under the agreement

5. Schedule 5 - Tax Illustrations: Examples of tax calculations and implications (optional but recommended)

Authors

Alex Denne

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

Jurisdiction

Singapore

Publisher

Ƶ

Document Type

Equity Agreement

Cost

Free to use
Relevant legal definitions









































Clauses






























Industries

Employment Act 1968: Singapore's primary employment legislation that governs the employer-employee relationship and benefits. Relevant for structuring the phantom equity as part of employment compensation.

Income Tax Act 1947: Governs the taxation of phantom equity payments, which are typically treated as employment income and subject to standard income tax rates.

Companies Act 1967: Key legislation governing companies in Singapore, relevant for provisions related to share capital, valuation, and employee incentive schemes.

Securities and Futures Act 2001: Relevant for ensuring the phantom equity scheme doesn't inadvertently create securities or capital markets products requiring regulatory compliance.

Contract Law (Application of Law) Act 1993: Governs the formation and enforcement of contracts in Singapore, ensuring the phantom equity agreement is legally binding.

Central Provident Fund Act 1953: Relevant for determining whether phantom equity payments are subject to CPF contributions and how they should be handled for CPF purposes.

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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