llc phantom equity plan sample

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I'm Erin hall an attorney in Minnesota you can learn more about me at Aaron hall com today I'm talking about phantom stock plans what is a phantom stock plan it's essentially a contract where the owner of it or the beneficiary of it can get a buyout of the stock plan at a later date depending on the value of the company at that time typically the company is valued through a independent professional appraisal service so there is some cost associated with that why would people want to use a phantom stock plan well it's typically a way for a business owner to give some ownership interest to an employee without actually transferring real ownership now sometimes that works the employees say hey this is great I wasn't going to get anything but my wages now I'm going to get actual value of the company upon the sale of these interests maybe it's and you might say well what kind of sale maybe it's an acquisition of the company maybe it's closure of the company maybe there are other time tables built in there either way it allows employees to get some value as though they own the company and so the more the company appreciates in value the more the employee benefits well why are some problems with it for one since this is a form of delayed compensation it's governed by ERISA that's ER is a a federal statute that governs wages and retirement and delayed compensation so you have to make sure that your phantom stock plan is compliant with ERISA the other problem is sometimes employees were just as motivated by wages they didn't actually need this and so it's now an additional complicate complication finally some employees say this isn't actual ownership hey it's nice but it really doesn't motivate me like actual ownership would do many times when small business owners are thinking about setting up a phantom stock plan I talk with them about what do you actually want to accomplish what are your goals and we figure out is there a way to do this without ERISA regulatory issues either way your best advice is talk with an attorney and focus on your business goals first and that will help the attorney determine whether a phantom stock plan or some other arrangement is the best way to accomplish your goals to learn more click the description below there are a number of links and additional information on my website