So here is the deal, I am not the founder but last few years actually have become a very key player. Initially we had agreement to fix issues and once they are done I get out. Now, of course they want to me stay, I asked for a minority interest (e.g. x%), and came to agreement. But, in order to avoid tax and evaluation expense, we are undergoing a change where we will do the phantom plan and have a separate agreement. The agreement is basically a standard buy-sell that currently exists among the ten real stock holders, with clauses saying it has the same rights as a shareholder. I am going to get it reviewed legally. My question is are side agreements valid? The current phantom plan is basically setup for cash out, so obviously mine is the only one that is funded and does not expire.
Or, you guys have any ideas on how to structure this? Basically I am looking to ensure that my interest is protected, i.e. I really need to ensure that all shareholder rights of the common stock are applicable without actually transferring the stock. Is that even possible? The main reason we are going into this arrangement is so they can save some money on valuation and I guess some tax implications..Any comments will be valuable...
I use phantom shares in my companies, and I love them. They provide a way for me to incent my employees as if they were owners without the headaches of issuing shares, evaluating the shares, buying back the shares, dealing with shareholder meetings, etc. For the owner of a company, they are awesome.
A structure I have used in the past is to have two agreements with key employees:
I find that this provides the employees with something that looks and feels like ownership (from a financial point of view), but reduces my management headaches substantially.
However, you should know that these agreements are not the same as equity and don't come with the same rights as equity. For example: