How the instrument works
A phantom plan is a bonus agreement linked to the value of the shares. The holder receives notional units. The company pays cash at a defined event, such as an exit, a dividend round or a milestone. The amount equals what those units would have earned. With a SAR, the holder receives only the increase in value above the value at grant. Everything is arranged in the contract, and the cap table stays the same.
Tax and accounting
Payouts are wage, taxed through payroll at progressive rates. Real equity gets capital treatment. Companies accept the wage treatment in return for less paperwork. For the company, the plan is a liability that rises with the valuation. Bookkeepers accrue it, and exit models include it from the start.
Read about the holding, the participation exemption and the dividend paid to the parent company on the Dutch holding structure for non-residents. For the yearly paperwork, see corporate secretarial services in the Netherlands.
When to use phantom shares or real equity
Phantom shares suit advisers and part-time roles. They also suit hires in other countries where the STAK is hard to extend. Companies that want participation before they set up a structure also use them. For the core team, real equity is the better choice: certificates through the STAK with capital treatment at exit. See the certificate structure and the option rules. Many scale-ups use both: the STAK for the core team and phantom shares for the people around them. Both are part of the standard structure. See the startup holding structure.