Phantom Shares - Dilution Free Equity on Capdesk

There are numerous schemes and plans out there to attract and incentivise employees, and more are certain to see the light of day. Some have tax advantages, such as EMI and CSOP. Others, such as unapproved options, do not, but are also less limited by legislative requirements.

Common for the aforementioned schemes and incentive schemes in general is the involvement of shares issued to the employee upon exercise. This causes a dilution of the cap table, which is not always appealing for a company and its shareholders. A phantom share scheme is one way around this.

A phantom share scheme is in its essence a cash bonus scheme. Employees are never given physical shares, yet, they still get many of the share ownership benefits. Even though phantom shares are 'hypothetical shares' - a financial instrument, rather than equity - they follow the price movement of the company’s actual stock, experiencing price changes and pays out any resulting profits just like actual stock.

A company issues phantom shares to an employee similarly to how they would do for an EMI or unapproved option scheme. But, instead of being an option to acquire shares at a certain price, the option is merely over cash. The value of the phantom shares will be the notional gain on the shares which would otherwise have been issued. The phantom shares typically uses a vesting schedule similar to its equity-settled counterparts, and a payment schedule giving the employee a right to a cash payment at a designated time or event in the future.

Phantom shares now available at Capdesk

We're proud to announce that phantom shares are now supported by Capdesk, any company can enable the add-on and get started! Once enabled, you can register your phantom share plans, allowing you to set out a framework with specific settings and documents prior to granting phantom shares. The phantom share plans also gives you an overview of how many phantom shares you have outstanding (granted and not yet paid out or lapsed) in total and per plan.

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When granting phantom shares, the employer and employee can agree to a hurdle price. When payment is due it will only take place if the value of the actual shares in the company is higher than the hurdle price specified on a phantom share grant. Furthermore, they have to agree on a payment schedule and how to calculate the future value. One type of payment schedule is 'exit only', e.g. the employee receives money if and when the company exits before grant expiry. The amount of money that is to be paid out is typically calculated based upon the appreciation between the value of a share at date of grant, and the value of a share at date of payment. Although it could just as well be the full value, hence, the difference between zero and the value of a share at date of payment.

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Phantom shares granted using the appreciation calculation method requires an initial value at date of grant. For this purpose you can register phantom share specific valuations on Capdesk, and use these values to calculate the appreciation.

 

ps-valuation

 

Your phantom share holders will be able to see their own grant in their portfolio, but, you can also give them configurable access to the company. By default they will be able to see and comment on news and post ideas and vote if the collaboration tab is enabled.

 

ps-grants

 

Interested?

Interested in a phantom share scheme? Our legal partners are happy to help you with assistance to set up a phantom share scheme. Just write us at support@capdesk.com.

Do you already have a phantom share scheme in place? No problem, simply fill in a csv file using the template found in the sample file available on Capdesk and import them or contact our support team for assistance.

 

Alexander Olsen
Alexander Olsen

Alexander is one of our Senior Developers at Capdesk. Alexander is M.Sc. in Machine Learning and Computer Science from University of Copenhagen, and a part of our Copenhagen Office.