The Phantom Equity Agreement is commonly used when companies want to provide key employees with equity-like incentives while maintaining existing ownership structures. This document type is particularly relevant for private companies, partnerships, or organizations where actual equity transfer is impractical or undesirable. The agreement typically details the number of phantom units granted, vesting schedule, valuation methodology, and payment triggers. Under U.S. law, these agreements must be carefully structured to comply with IRC Section 409A and other relevant regulations to avoid adverse tax consequences.
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1. Parties: Identification of the company and phantom equity recipient
2. Background: Context of the agreement and purpose of phantom equity grant
3. Definitions: Key terms including Phantom Units, Fair Market Value, Vesting Schedule, etc.
4. Grant of Phantom Equity: Number of units granted and terms of grant
5. Vesting Provisions: Vesting schedule and conditions
6. Valuation Methodology: How phantom equity units will be valued
7. Payment Terms: When and how payments will be made
8. Termination Provisions: Rights upon employment termination
1. Change of Control Provisions: Additional rights and procedures upon company sale or merger
2. Non-Competition Clause: Restrictions on competitive activities and protection of company interests
3. Dispute Resolution: Specific arbitration or mediation procedures for resolving disputes
1. Schedule A - Grant Details: Specific details of phantom equity grant including number of units and grant date
2. Schedule B - Vesting Schedule: Detailed vesting timeline and conditions
3. Schedule C - Valuation Formula: Detailed methodology for calculating unit value
4. Schedule D - Notice Provisions: Contact details and notification requirements
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