Available for PC, iOS and Android. A Primer on Limited Liability Companies 2. Acceptance by Participant . If the plan is designed to make annual payments to the phantom plan participants to replicate the cash and stock distributions made to the company’s actual stockholders, the payments are taxable to the phantom plan participant as ordinary income and deductible to the company when paid. Tools. A phantom stock plan is a contractual agreement wherein a company promises to make cash payments to employees upon the achievement of certain conditions. Semgroup Energy Partners G.P. What Is a Phantom Stock Plan? Phantom Equity Phantom or synthetic equity is not truly an ownership interest in the business. By Drew Stevens - July 29, 2019 - Securities. “Phantom equity plans and stock appreciation rights plans (plans) are a useful tool to reward key employees,” says Jill M. Bellak, Esquire, a member of Semanoff Ormsby Greenberg & Torchia, LLC. Startups can offer PE to valuable employees, so they have skin-in-the-game, and thus, feel an urgency to help the startup become as successful as possible in the shortest amount of time. All benefits due under this Plan are unfunded and unsecured and are payable out of the general assets of the Company. The first is traditional Phantom Units that are 409A compliant and the second is Unit Appreciation Rights. Case Studies & Articles. Generational Equity does not provide tax and stock structure advice. Phantom equity is essentially a deferred compensation agreement between the company and the employee. Hamby Benefits Law, LLC recommends that you consult ERISA legal counsel (i) to assist in determining whether a phantom equity plan is the appropriate executive compensation plan for your company and (ii) to assist with drafting, implementation and administration of a phantom equity plan that complies with all necessary legal requirements. The unit value for the phantom plan is set equal to the unit value of the real shares. For example, the phantom equity plan might be structured to require the bonus to be grossed up to yield the same net cash-in-pocket amount of $375,000. Designing an Equity Incentive Plan 3. The formula above solves for value of actual equity and assumes the phantom plan is a liability of the company that reduces equity value. Follow this guide to create your own plan. More flexibility. Allowing Holders of LLC Equity Interests to Be Treated As Employees 5. Valuation Considerations A key valuation consideration is that the phantom share liability not dilute the value of the company’s equity shares, rather, remain equal in value to the equity shares. Setting up a phantom stock bonus plan is much less expensive than setting up an ESOP, and when you're running a business, anything that saves you money is a good thing. A Primer on Sharing Equity with Employees in Non-LLC … Everything is negotiable. A phantom stock agreement, also called a phantom stock plan, is an employee benefit plan that provides certain employees many of the advantages of owning stock in the company without giving them actual stock. MARTHA STEWART LIVING OMNIMEDIA LLC PHANTOM PERFORMANCE UNIT PLAN ARTICLE I - GENERAL 1.01 PURPOSE The purposes of the Martha Stewart Living Omnimedia LLC Phantom Performance Unit Plan (the "Plan") are to more closely align the interests of participants in the Plan ("Participants") with those of equity owners ("members") of Martha Stewart Living Omnimedia LLC … Build A Plan. Also known as simulated stock, shadow stock, or synthetic stock, these plans allow key employees to share in company growth without owning company shares. means the Company’s 2009 Management Phantom Equity Plan in substantially the form attached as Exhibit E hereto, as amended, from time to time in accordance with Section 4.1(h)(viii). Since phantom equity is not as common as options, and less intuitive than straight equity ownership, you may have to spend more time explaining how such a plan … Creating a phantom stock plan Under a phantom stock plan, the employer awards bonuses to the key employee by providing "phantom" shares of corporate stock. Phantom Equity (“PE”) is a contractual agreement for a type of deferred compensation between a company and key employees, advisors, and/or contractors. Either the plan document or the participant could specify the liquidation period after vesting. The undersigned is a Participant under the First Amended and Restated Phantom Stock Plan dated January 1, 2007, and hereby acknowledges that Participant has read the Plan, understands the Plan and accepts the terms and conditions of the Plan. Phantom Equity Plan of Oaktree Capital Group, LLC. Payment of Phantom Stock Interest. But while talking with them, bring up the subject of phantom equity as an option. Employers that want to set themselves apart from competitors, however, may want to consider offering key employees equity-based incentives such as “phantom units.” A phantom stock plan allows business owners to give key employees many of the benefits of ownership without actually relinquishing any company stock. If the plan fails to satisfy the requirements of that section, the key employee would be taxed on the unpaid amount deferred under the plan and would be subject to penalties. A phantom stock plan is a form of deferred compensation and will need to be carefully structured to avoid any adverse tax consequences to the key employee under Section 409A. Just as with stock awards, the purpose of a phantom stock plan is to generate an ownership mentality and reward key employees for helping to grow the business value. Should the company distribute all shares to employees, shareholders would be reducing their equity value of the company by 9.1% (assuming Full Value awards). LLC Long-Term Incentive Plan. Employees who hold phantom equity do have a claim on the economic value and growth of the company. Introduction. Decide whether Phantom Stock is a fit for your company. Your business is growing, and you’re at the point where you want to talk to a business lawyer and consider some sort of employee equity inventive plan. Phantom equity arrangements are usually structured by granting the employee In general terms, phantom stock is a compensation plan that confers the right to receive cash at a future point in time, typically a share of the proceeds received upon the sale of a company. 2. The Company shall pay, and Executive shall be entitled to receive, the value of the Phantom Stock Interest, which shall be paid as follows: (a) in the event of a Sale, at the same time and in the same form of consideration (on the same proportionate basis) as is paid to the seller in the Sale; In many cases, participants will hold phantom shares for longer time periods when the return on equity is high. This quickly leads to the consideration of what the impact might be if the phantom equity bonus is grossed up to yield the same net after-tax cash in pocket for the employees as they would have received with a capital gain profit interest. As I said earlier, oftentimes startup companies that are bootstrapped and trying to raise investment capital don’t have a war chest of money available to pay the best and brightest new employees market rate salaries. For "do-it-yourselfers." Presumably the employee must be employed through the end of each year so I … It’s all contractual. Chaparral Energy LLC Phantom Unit Plan. Start a … What’s the purpose? Fill out, securely sign, print or email your model phantom equity plan form instantly with SignNow. The most secure digital platform to get legally binding, electronically signed documents in just a few seconds. However, I imagine that the value of a semi-permanent phantom equity contract is much higher than the value of a phantom equity contract that exists as long as the employee/”shareholder” remains an employee. Nant Health, LLC Phantom Unit Plan. 5. Phantom Stock Plan . Phantom equity is essentially a cash bonus plan that is designed to mimic the effects of having an ownership interest in a company. PSAV Holdings LLC Phantom Unit Appreciation Plan and Award Agreement. Read the latest discussions about our value sharing strategies. Equity Compensation in Limited Liability Companies 4. Instead, it is a contract between the business and the employee designed to mimic all or part of the economics of having a true equity interest in the business. 3. Define Management Phantom Equity Plan. The shareholders might approve an additional 100,000 phantom shares. NATURE OF PHANTOM STOCK This Plan is solely an arrangement to pay compensation. Equity Incentives . Before you consider doing any sort of stock sharing plan, you need to consult with your CPA and attorney. Model Phantom Equity Plan. Let’s spend a little bit of time now talking about equity incentives and employee compensation. Phantom Stock Plans Pros and Cons. The phantom equity doesn’t have to end if an employee leaves the company. Accounting for Equity Compensation in an LLC 6. 1. Explore our wiki and find the answers to your Phantom Stock questions. A phantom stock plan is a form of long-term incentive plan (LTIP) typically used by privately held businesses. Phantom stock is also known as shadow stock or synthetic equity. After a plan participant’s phantom shares vest, the plan document often will define when the shares may be converted to cash. 1. 4. A phantom stock plan is a deferred compensation plan that provides the employee an award measured by the value of the employer’s common stock. It is not widely known and has many benefits. You do need to complete an independent valuation every year to stay compliant with the plan but it will give you a lot of options without changing the LLC structure or … However, unlike actual stock, the award does not confer equity ownership in the company. A phantom plan typically provides a less expensive alternative that is not subject to the same restrictions as most equity ownership plans. LLC wants to give CEO phantom equity of 5% such that on 12/31 of each year the company would pay CEO a bonus equal to 5% of the total cash distributions made to actual equity members during the calendar year. 1. Delek Logistics GP, LLC 2012 Long-Term Incentive Plan. This results in a “value dilution” potential of 9.1% (100,000 ÷ 1,100,000).