Anyone here deal with Phantom Share Agreements? Would that be in the wheelhouse for an ECVC lawyer? My BIL is being offered a job with a company and received a proposed phantom shares agreement. One condition states that he must remain in good standing with the company even after the 3 year vesting period to receive distributions. Is that atypical?

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Talk to an exec comp colleague. don’t draft this without their input. Corporate people drafting this = 409A hell

likehelpful

And it's pretty clear OP is not drafting a phantom share plan; they are looking at one provided to their family member - a plan I'm sure has been reviewed by exec comp attorneys for its qualification for exemption from or compliance with 409A.

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That's fairly standard. A lot of equity comp plans have such a provision. It's one of the ways they satisfy the substantial risk of forfeiture rules for deferred comp to remain nontaxable during the deferral and not subject to penalty upon payment. And, they really don't want to have to pay people who aren't there anymore.

ETA: I am one of your tax/exec. comp colleagues. But you should have someone who knows about 409A to review the plan holistically. However, generally, being required to be employed when payments under the plan will occur results in the plan being exempt from 409A, but there are a lot of nonobvious traps that might bust that treatment.

likehelpful

One other point--the shares are then useless to BIL if he doesn't intend on staying for vesting period. So make sure he negotiates with this business point in mind, and know what he gets if there is an exit before he's fully-vested.

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That’s a standard additional “vesting condition.” It typically means that once it vests, you get to receive distributions but for each and every distribution that he may get with respect to the phantom shares, he has to be employed and not give, or be given by the Company notice of termination.

Idk if you know any exec comp attorneys at your firm who will be kind to do you a favor and review it for free, but you just got free Fishbowl advice.

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