What is a phantom stock agreement?

A. A phantom stock plan is a deferred compensation plan that awards the employee a unit measured by the value of a share of a company's common stock, or, in the case of a limited liability company, by the value of an LLC unit. However, unlike actual stock, the award does not confer equity ownership in the company.

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Middlesex Massachusetts Phantom Stock Plan of Hercules, Inc.

Name: Middlesex Massachusetts Phantom Stock Plan of Hercules, Inc.
Brand: US Legal Forms
Rating: 4.77 (439 reviews)

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Corporations - Public - Disclosure and Notices

State:

Multi-State

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Middlesex

Control #:

US-CC-24-258

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Instant download

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This sample form, a detailed Phantom Stock Plan document, is a model for use in corporate matters. The language is easily adapted to fit your specific circumstances. Available in several standard formats.

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FAQ

In conjunction with generally accepted accounting standards, a phantom stock plan is accounted for as a deferred cash compensation plan because the employee receives the increase in the value of an underlying number of shares or units over a specific period of time in the form of a cash payment on a specified date.

A. A phantom stock plan is a deferred compensation plan that awards the employee a unit measured by the value of a share of a company's common stock, or, in the case of a limited liability company, by the value of an LLC unit. However, unlike actual stock, the award does not confer equity ownership in the company.

To the extent that phantom stock is considered a security, private companies generally rely on the exemption from registration under Rule 701 of the Securities Act of 1933, which allows a company to offer securities to employees under a written compensatory plan if: (1) certain disclosure requirements are met and (2)

Phantom stock is not a good idea if the company is planning on issuing them to most or all employees, especially if the shares will be paid out when the employee leaves the company or retires. In that case, phantom shares may be ruled illegal because of the Employee Retirement Income and Security Act (ERISA).

Because participants in phantom stock plan are not shareholders, they are not entitled to dividends per se. However, the phantom stock plan may call for phantom dividends. Such payments might be included in a plan once a participant is vested in full value shares that have not yet been redeemed (or cashed in).

A stock appreciation right (SAR, in short) is a lot like phantom stock. The only difference in this is that it provides the right to the monetary equivalent of the increase in the value of a specified number of shares, over a specified period of time.

For both phantom stock and SARs, employees are taxed when the right to the benefit is exercised. At that point, the value of the award, minus any consideration paid for it (there usually is none) is taxed as ordinary income to the employee and is deductible by the employer.

5 Tips for Creating a Phantom Stock Plan Understand what you are and aren't 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.

A phantom stock plan is an employee benefit plan that gives selected employees (senior management) many of the benefits of stock ownership without actually giving them any company stock. This type of plan is sometimes referred to as shadow stock. Rather than getting physical stock, the employee receives mock stock.

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Middlesex Massachusetts Phantom Stock Plan of Hercules, Inc.

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