If your business is thinking about ways to incentivise employees to stay with your company and perform well, a Phantom Share Scheme might be your best option.

So, what is it?

If you think about an Employee Share Ownership Plan (ESOP) or an Employee Share Scheme (ESS), you’ll know that this involves offering or issuing shares to employees to motivate and reward them for good performance (note that there’s a difference between the two!). 

It’s typically used with startups where they don’t really have the financial resources to compensate employees in the early stages. 

So, how are phantom shares different?

How Do Phantom Shares Work?

The best way to understand phantom shares is by comparing it to an Employee Share Scheme (ESS). 

Under an ESS, the company issues real shares to the employees as an incentive to stay with the company and deliver results. However, under a Phantom Share Scheme, you merely offer shares to employees based on any increase in your company’s share price. 

The key difference here is that under a phantom share scheme, you’re not actually giving them ownership of the shares – you’re offering a contractual agreement tied to shares. It’s a great way to incentivise employees without actually losing equity. 

You might even think of them as ‘fake shares’ since there’s no guarantee of ownership. But this is exactly why it can get risky.

So, this is where a Phantom Share Agreement becomes essential. 

What Is A Phantom Share Agreement?

A Phantom Share Agreement will cover the key details of a Phantom Share Scheme as well as the relevant risks. It should include:

  • The conditions of the scheme
  • How payments are to be made
  • Limitation of liability

Like any other Agreement, these terms will differ depending on the nature of your scheme and your company’s interests. Accordingly, it makes sense to speak to a lawyer who knows how to draft this sort of Agreement in accordance with your goals. 

Where Can I Get A Phantom Share Agreement?

Our lawyers at Sprintlaw can assist you with your Phantom Share Agreement so that all the key details around your scheme are covered. 

As part of our package, you’ll get:

  • A Phantom Share Agreement tailored to your company 
  • Phone consultations with one of our expert lawyers who can advise you on the legal issues that apply to you 
  • A complimentary amendment to the final draft we create

Need Help?

A Phantom Share Agreement needs to cover all the relevant terms and risks since the shares being offered are not entirely set in stone. To help with this clarity, Sprintlaw has a team of lawyers who can draft an Agreement according to your interests and work with you to ensure you’re happy with the result. 

If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

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