The following guide will help you decide which parameters need to be decided for a phantom plan. For remaining questions, contact one of the partnering law firms.
The parameters you need to decide
|Parameter||What to decide||How to decide|
|Size of the pool||Number of virtual shares reserved for employees, with one virtual share equal to one common share of the company.|
It is often also expressed in percent of the total shares.
|Discuss with your board, they have to approve the plan.|
Common practice at the seed stage is 5 - 10% of the company’s share capital on a fully diluted basis. This typically goes up to 20% during the company lifetime.
|Vesting||Discuss with your board. Common practice is 3 - 4 years duration, monthly allocation, 1 year cliff.|
|Accelerated vesting at exit, change of control or IPO||Choose among 3 possibilities:||Also this you should discuss with your investors. The common practice is 1 but 2 is also often seen, especially in the US.|
|Triggering Cash-Events||Several types of events can trigger a payment to phantom holders: the payment of dividends, a voluntary liquidation, a change of control / exit (transfer of >50% of voting rights or sale of its assets) or IPO.|
Most are standard, but you should decide whether you want dividend payments to be a triggering event.
|Think about whether your startup could someday give out dividends or if will aim for an exit before.|
Common practice: Usually dividends are no triggering event, as it adds another layer of complexity.
|Termination during Vesting Period||If the company should have a repurchase right on vested options in case the employee’s employment is terminated (in good terms).||The common practice is to have a repurchase right even though it is rarely exercised.|
|Termination after Vesting Period||If the company should have a repurchase right on vested awards in case the employee is terminated (in good terms).||The common practice is to have a repurchase right even though it is rarely exercised.|
|Virtual options or shares||A phantom plan can mirror options with a strike price.||Mostly only virtual share plans are used.|
Standard parameters, but good to know
|Eligibility||Who should be able to receive rewards: Employees, consultants, advisors, members of the board of directors (the “Participants”)|
|Funding||Via the Company (indirectly through all shareholders pro rata)|
|Issue Price||Free of charge|
|Conditions to Cash-Payments|
|Transferability of Awards||None, unless in case of death as under the applicable matrimonial property and inheritance laws and the Participant's lawful last will.|
|Term of the Plan (Expiration)||10 years|
|Anti-Dilution Protection||The Participants acknowledge and agree that the Options granted under this Plan are granted without protection against future dilutive effects (e.g. issuance of new shares of the Company).|
|Governing law and Jurisdiction||Swiss law, place of domicile of the Company.|