Document background
The Phantom Equity Agreement serves as a crucial instrument for South African companies seeking to incentivize key personnel without diluting actual shareholding. This document type is particularly valuable when companies wish to retain tight control over their shareholding structure while still offering competitive, equity-like incentives. The agreement, governed by South African law, typically includes detailed provisions on phantom unit allocation, vesting conditions, valuation methodologies, and payment triggers. It must comply with South African tax legislation, particularly Section 8C of the Income Tax Act, as well as relevant labor and companies laws. The Phantom Equity Agreement is commonly used in both established corporations and startups, especially when restrictions on share transfers exist or when simplified administration is desired. The document provides a framework for synthetic equity that mirrors the economic benefits of actual shareholding while avoiding the complexities of share register management and shareholder rights.
