Set up a phantom share option plan that rewards growth without issuing equity

This is often considered where a business wants to reward or retain key people by reference to company value, but does not want to issue actual shares or alter voting rights. It can suit founder-led businesses that want to keep ownership tightly held while still offering a meaningful upside arrangement. A phantom plan is usually contractual and cash-settled rather than equity-based. Whether it is the right fit depends on your commercial aims, the participant group and how you want the incentive to operate alongside existing employment or consultancy arrangements.

The main issues often include who can participate, what the notional award represents, when vesting happens, what events trigger a payout, how value is calculated and what happens if someone leaves before or after vesting. Clear drafting is also needed on amendment rights, plan discretion, communications and how the arrangement interacts with employment contracts or consultancy terms. The practical working model can be just as important as the contract wording, particularly if the plan is being offered across different categories of participants on different terms.

Yes, that can matter a great deal. A phantom plan may look similar across participants at a high level, but the legal and practical issues can differ depending on whether the person is an employee, director, consultant or another type of worker. Leaver treatment, communications, contractual rights and the surrounding documents may need a different approach. The right wording depends on the deal structure, the documents exchanged and how the arrangement operates in practice. That is one reason a generic set of rules can create problems if the participant group is mixed.

No. Phantom incentive arrangements can raise tax questions, but specialist tax advice is not part of this service. We can help with the legal design of the plan, prepare the documents and flag where tax input may be sensible, but we do not advise on tax structuring within this fixed-fee. This service We will make the key issues clear so you can decide what to do next. If tax analysis is needed before launch, that should be obtained separately alongside the legal drafting.

After engagement, we gather the key commercial points for the plan, such as who will participate, what behaviour or milestones you want to reward, and what kind of payout event you have in mind. We then prepare the draft documents and work through feedback and amendments within scope. Timing depends on how settled the plan design is and whether there are different participant categories or more complex leaver and valuation points to address. Many matters can move within one to two weeks once instructions are clear.

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