Phantom Equity

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March 23, 2025

by a searcher from Baruch College-The City University of New York - The Zicklin School of Business in Tampa, FL, USA

Curious if anyone has experience structuring phantom equity agreements for General Managers within a franchise business, specifically in a way that:

  1. Avoids the need for inclusion in the franchise agreement or disclosure to the franchisor
  2. Ties payout only to a liquidity event (e.g., sale) and only if the GM is still employed at that time

    Would appreciate any insights or examples around how this is typically documented (employment agreement, side letter, or separate phantom equity plan) and any lessons learned around enforceability at exit.
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Reply by a professional
from University of Notre Dame in New York, NY, USA
If it’s just one or two individuals getting phantom equity- it’s usually baked into their employment agreement, but could also be part of an LTIP (Long Term Incentive Plan) or similar document. We use this tool often in deals to incentivize management level employees with upside but not give them any governance rights. Happy to chat more - shoot me a DM or email me redacted
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Reply by a searcher
from University of Illinois at Urbana in Champaign, IL, USA
It's actually pretty simple. It's just a contract/agreement. It can even be written in common language. The only potential issue I see is if some other legal agreement already in place specifically forbids this.
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