Phantom Stock Agreement Canada

Frequently asked questions about stock options and tax effects There are also risks for employees with share plans such as the investment risk that the value of the shares will decline either by market forces or by the shares of majority shareholders. Similarly, shares in private companies are generally illiquid and, therefore, there generally must be a long-term commitment from the employee before a value of the shares can be realized. There are situations in which the employee and the employer in general want to match the value of the shares, but do not want to take the other obligations or risks associated with the workers related to the holding of shares. Having employees as shareholders means having minority shareholders. As a result, an owner-manager who has not previously shared ownership of his business with others will have to deal with shareholder agreements, dilution of ownership and the obligation to share financial information with employees. In addition, any restructuring of the company, including the termination of the estate or an asset protection plan, may be more difficult for minority shareholders. Stock option plans are the most common form of employee compensation per share. As you probably already know, complex tax legislation applies in income tax law when a capital corporation agrees to sell or sell its shares to an employee of the company. Although there are no tax consequences at the time of the granting of a stock option, it is necessary, when exercising the stock option and acquiring the shares, to calculate a taxable work allowance.

This benefit is calculated as the difference between the fair value of the shares at the date of the year and the amount paid for the shares, plus the amount paid for the acquisition of the option. Although phantom stock and other similar plans are not widespread, they offer companies the opportunity to compensate employees without having to transfer a stake in the property. A phantom stock plan is not set for income tax. It usually refers to a plan that rewards employees in cash, and the amount of the reward is directly related to the value of the company`s shares.