Do Phantom Stock Plans Need To Be Registered Under The Securities Laws

There are important considerations an employer should take into business relationship when implementing these types of deferred bounty plans.

By: Maxwell Briskman Stanfield

Despite the ghostly name, phantom stock is not quite every bit mysterious as it sounds. In fact, information technology is used in deferred compensation plans that are useful for the correct employees at the correct companies.

Phantom stock provides an employee benefit measured by, and tied to, the value of an employer'southward common stock. What makes information technology a "phantom" is that, dissimilar actual stock that conveys a piece of equity ownership in a company, phantom stock does not bequeath any actual equity ownership. However, merely similar its counterpart, the value of phantom stock fluctuates, year-to-year, based on the value of the visitor.

Offering employees phantom stock avoids unintentionally providing them voting rights or other unanticipated minority rights. Furthermore, it eliminates the complexity, fees and actress documentation that comes with offering common stock equally a benefit. Phantom stock plans remain beholden to certain laws and regulations, just they are less complicated for employers and still give employees a stake in the company'due south success, on the whole.

For companies that implement phantom stock plans, there remain important considerations. A properly drafted phantom stock plan would describe the following:

How many shares of phantom stock or the percentage interest to be granted to the employee.
How the phantom stock's value will exist determined, which can include appraisement, written formula or land stipulation. This would have into account whatever and all adjustments the parties deem to be advisable (for case, exclusion of certain gains or losses, or additions of dividends paid to shareholders).
What the triggering events are for valuation, significant those events that entitle an employee to receive the do good under the plan.
How the employee receives value from the phantom stock, including when the payments will commence and whether they would exist disbursed in a lump sum or in installments.

Beyond those points, at that place are taxation considerations a business organisation must keep in mind. As a form of deferred compensation, phantom stock plans must comply with Internal Revenue Code Section 409A, at the risk of financial penalties for whatever violations. Payroll departments must as well be enlightened the value of phantom stock shares are discipline to Medicare and FICA taxes as they vest.

An attorney experienced in business concern matters can help a company determine if offer a phantom stock programme is the right decision, craft a properly structured plan and reveal that these types of benefits aren't as mystifying as they might seem at first. If yous're interested in learning more, contact Maxwell Briskman Stanfield. A link to his contact information is included below.

This cloth is for informational purposes only. It is not and should not exist solely relied on as legal communication in dealing with whatever specific state of affairs.