Do you want to understand how phantom shares can be used to incentivise your employees? Do you participate in a phantom share scheme and you are unsure what your rights are? Suzy Giele from our team at EM Law is one of the UK’s leading experts on phantom shares as well as other types of share incentive schemes.
Phantom share options are arrangements that allow individuals who are given the benefit of the options to receive a cash payment linked to the increase in value of the “real” issued shares in a company.
For example, let’s say that on 6 April 2018 a company’s ordinary shares are worth £1 million.
John Smith, an employee of the company, is a participant in the company’s phantom share option plan. The plan states that if the company’s ordinary shares are worth more than £1 million on 6 April 2019 each of the participants in the scheme are entitled to receive a cash payment of £1,000.
On 6 April 2019 the company’s ordinary shares are worth £1.5 million. John Smith is entitled to a payment from the company of £1,000.
Phantom shares are conceptually similar to share appreciation rights (SARs) which is the term more commonly used by US corporations.
Why use Phantom Shares?
One of the advantages of using phantom shares is that it obviates the need to issue real shares. This means that the employees who benefit from the phantom shares won’t need to sign off on transactions, aren’t entitled to attend general meetings and the balance of power between the shareholders who are issued with real shares is not disturbed. In many ways it makes it simpler for employees to participate in the growth of the company without the complexity and additional considerations that come with issuing real shares.
In the example above, John Smith is entitled to a payment when the company’s shares reach a certain value. However, phantom shares can be granted on an “exit only” basis i.e. when the company is sold. In this instance, if the company is bought for cash, liquidity should not be an issue.
There is no income tax liability on the grant of a phantom share option. An employee who receives a pay-out will be subject to income tax and NICs on the amount of cash received in the same way as any other cash bonus. Employer NICs will also apply.
Phantom shares need to be structured carefully bearing in mind the requirements of the Financial Services and Markets Act 2000.
For any questions you may have concerning phantom shares contact Suzy Giele.
"Neil and his team have undertaken several items of legal work covering contracts, agreements and share option schemes for IMC Worldwide... View More Testimonials"
Gavin English MD IMC Worldwide Ltd
"Neil at EM Law advised us with regards to GDPR. He was thoughtful and thorough.... View More Testimonials"
COO of a Strategic Communications Agency
"I want to thank Neil at Emerging Law for his support and guidance whilst I have been setting up my own business. He has talked me through the step by step stages and legalities involved so that I can make informed decisions about my business approach... View More Testimonials"
Ayshen Ali founder Attainers Limited
"I felt incredibly fortunate to have come across Imogen. She was fantastic at helping at every juncture... View More Testimonials"
SM, Recruitment Manager
"Neil and Lauren were both very helpful in drafting contracts I needed for my firm... View More Testimonials"
Alex Mosley, Director Perrygate Property Limited
"Neil and Helen provided us with an employment contract and terms and conditions of business. We found Neil and Helen to be extremely informative and helpful throughout the process... View More Testimonials"
Grant Lambert MD Honor Search (Digital Recruitment)
"Neil Williamson, I cannot thank enough for his work and legal advice, which had brought the great result.... View More Testimonials"
"Neil was brilliant, patient and thorough guiding me through queries setting up my business to be compliant.... View More Testimonials"
Kate York, Photographer
"Neil and I worked alongside each other for several years securing software business overseas for Crown Agents... View More Testimonials"
Nick Small Director Nick Small Consulting
"What can I say about Imogen? She was the shining star in what was a very difficult time for me.... View More Testimonials"
VR, Nutritional Chef and Culinary Manager
"Imogen....has a very personable approach and is succinct in her communication. I would highly recommend her... View More Testimonials"
KE, Development Manager
"Imogen has always given me sound, objective and carefully considered legal advice.... View More Testimonials"
MB, Senior Sponsorship Manager
"Thank you for all your help with the matters regarding my company, you have been thorough in all aspects to the finer detail... View More Testimonials"
John Taylor Director Glo-bell London Ltd
"Neil is able to address complex issues, give us advice that we can follow and come up with creative solutions... View More Testimonials"
Ismet Yucetas CEO Middle East Air Drilling Services
"Imogen is a fantastic employment lawyer. Clear, supportive and very skilled in her area.... View More Testimonials"
LC, Director at a Management Consultancy
"Neil helped us structure, negotiate and put in place our first client software-as-a-service contracts. His technical and commercial advice was invaluable - he understands exactly where we are coming from... View More Testimonials"
Lena Rosenior CEO De Graft Management Ltd
"Cardno has worked closely with EM Law since 2013. The advice and support provided to our business by EM Law has been of a high quality, relevant to our requirements and more importantly helped us to make the appropriate decisions that have contributed to the success of our business... View More Testimonials"
George Mukkath Managing Director Cardno Emerging Markets (UK) Ltd
"We have been working with Neil for many years now, more recently on a retained basis because he has become someone we trust and who understands our business requirements. ... View More Testimonials"
Rupert Wood CEO Wasteland Ski Ltd
"We have worked with Neil and his colleagues on a number of different company issues including business acquisitions, client contract and employment matters... View More Testimonials"
Dave Dadds CEO DRD Communications Ltd
"Starting a new venture, within a new country......I needed someone who could understand the complexities and culture of the venture...... View More Testimonials"
Maren Koros CEO Afyacore
"EM Law have supported Anexsys with a number of legal issues, ranging from drafting complex IT contracts to developing conflict policies and advising on a range of complex multi-jurisdiction legal issues... View More Testimonials"
Rob Crowley MD Anexsys Ltd
Can We Help You?
We are here to help with any of your questions.
Just click "Yes" below.
Please enter your question below
Please enter your name and email address so than we can send you a response
Thank you for sending us your question. We will contact you shortly to discuss this.
Sorry, there is a technical issue. Please contact us by telephone: 0203 637 6374