Phantom equity & SARs

A company that wants to share its upside without issuing stock can promise cash instead. Tenacap records those promises, the plan they come from and the payments made on them, without touching your share ledger.

What phantom equity is

There are two shapes, and Tenacap records both:

• Stock appreciation rights (SARs), also called appreciation units, pay the growth in value of a number of shares above a base price set at grant. A SAR on 10,000 shares with a $0.20 base pays nothing while a share is worth $0.20, and $3,000 when it is worth $0.50.
• Phantom stock (full-value units) pays the whole value of a number of shares.

Either can be paid in cash, which is the usual case, or in shares. An award paid in cash issues no shares and uses none of your authorized shares. Nothing reaches the share ledger when you grant one, cancel one or record its payout.

Creating a phantom plan

Open Cap Table → Update and find Phantom equity. Creating a plan needs the Admin role, as creating an option plan does. The form asks for:

• Name, for example “2026 Phantom Unit Plan”.
• Kind: phantom stock, appreciation rights, or a plan that allows both.
• Paid in: cash, shares, the holder’s choice, or the company’s choice. This is the default for the plan’s awards.
• Units authorized, the plan’s size in units. Leave it empty for a plan with no stated size. It is never compared with your authorized shares.
• Count in fully diluted, the switch described below.

Granting phantom units or SARs

Editors and admins grant from the same section. Pick the holder, the plan (or none), the kind, the number of units, the base price for a SAR, how it is paid, when it pays (a sale of the company, a fixed date, leaving the company, on vesting, when the holder exercises, an IPO, or other), and a vesting schedule if it has one.

An award can also be stated as a percentage of fully diluted. Tenacap records the unit count at grant, computed from today’s fully diluted, and keeps the percentage beside it.

Your plan decides whether that percentage holds as the company grows. Tell Tenacap which one it says when you grant:

• At each financing. When you record a priced round in Tenacap, the award is re-measured in the same step: the percentage of fully diluted after the round, not counting phantom units. Five percent granted on 16,000,000 is 800,000 units; after a round that brings fully diluted to 20,000,000 it is 1,000,000. The round’s proposal lists every award it re-measures, and the award’s vesting keeps the same fraction vested.
• At a sale. The count stays as granted, and the exit model re-measures it on fully diluted at the sale it models.
• Never. The count stays as granted, so the holder’s share falls with every new issue.

If your plan’s fully diluted counts the phantom units themselves, say so at grant: five percent of a company that includes the award is a little more than five percent of one that does not (842,105 units rather than 800,000 on 16,000,000). A round you record by importing a file, or by issuing preferred stock by hand, re-measures nothing; correct the count on the award.

Fully diluted

Whether phantom units belong in “fully diluted” depends on the document that uses the number. The YC post-money SAFE counts SARs in its Company Capitalization whether they pay cash or shares. The NVCA charter’s definition does not reach a right paid only in cash. Carta and Pulley leave phantom units out unless the company says otherwise.

Tenacap’s rule:

• Awards that can pay in shares are always counted, at their unit count, like options.
• Awards paid in cash are not counted unless their plan’s Count in fully diluted switch is on. An award outside any plan is not counted.

When cash awards are left out, the fully-diluted tile on the cap table says phantom excluded and names the units, so the number never looks as if it has no convention behind it. Changing a plan’s switch shows fully diluted before and after before you confirm.

Value today, and at a sale

Value today appears beside each award in the Phantom equity section: the units not yet paid, at the fair market value of a common share in your current 409A, less the base price (none for full-value units). It is an illustration at the appraised value, not a promise of what the award will pay. With no 409A in force, or for an award measured on a preferred class, no figure is shown, because a 409A values common shares.

At a sale, the exit model pays each outstanding award out of the price before the shareholders split it. How much depends on how the plan values a unit:

• After the payout: a unit is worth what a common share actually receives, which the payout itself reduces. On a $50,000,000 sale, 10,000 units with a $0.20 base pay $32,713.39 on the reference cap table.
• Before the payout: a unit is worth the per-share price before the payout comes out. The same units pay $32,736.11.
• Not stated: Tenacap shows both figures and does not pick one. Set the plan’s measure on the award to see a single figure.

The exit model assumes every outstanding unit pays at the sale. An award measured on a preferred class, or one that is part full value and part appreciation, is listed but not valued.

In the portal, each holder sees their own phantom awards beside their shares and options: units, vesting, base price, how and when it pays, and value today. The portal says they are not shares and carry no vote. A holder never sees another holder’s award.

Awards paid in shares

An award that can be paid in shares has to have shares set aside for it. In Tenacap that reserve is an option plan: a phantom plan paid in shares names the option plan it draws on, and each unit uses one of that plan’s available shares, as an RSU does. The shares are counted once, as the award, and leave the plan’s available pool, so fully diluted does not move. Cancelling the award gives them back.

Cancelling and recording payouts

Cancel or forfeit an award from a date; its units go back to its plan. When the company pays an award, record the payout: the date, the units it settles, the value per unit and the cash paid. Money never moves through Tenacap; this is a record of a payment already made. Each payment is its own record, because §409A tests each one on its own. Once every unit is paid, the award shows as paid.

An award that can pay in shares can be settled in shares instead, on a date and at the fair market value of a share then. A SAR settles net: 10,000 SARs with a $0.20 base, settled when a share is worth $0.50, are worth 10,000 × $0.30 = $3,000, which is 6,000 shares; any fraction of a share is paid in cash. Full-value units become one share each. The shares are issued from the equity plan the award draws on, so its reserve falls by the shares delivered and the units not delivered go back to it. Fully diluted does not move: the units were already counted.

Corrections to an award recorded wrong are made with Correct. A lower base price on a SAR that was granted correctly is a repricing, which §409A treats as a new grant: cancel the award and grant a new one instead.

Phantom equity in an import

Phantom plans and awards in an import are read into the Phantom equity section as their own records and never become an option pool, a share class or shares. See Imports for what each source carries.

• Carta and Pulley each define phantom stock as paid in cash. An award their export calls phantom is recorded as cash, and a card asks you to confirm it against your plan document.
• Mantle, the Tenacap workbook and the spreadsheet template record an award as paid in cash or in shares only when the file says so. Otherwise it is recorded as not stated.
• Stock appreciation rights are recorded as not stated for settlement wherever the file does not say, because a SAR can pay either way.

Each plan gets one card listing what its file leaves out: how a unit is valued at a sale, and whether units are a fixed number or a percentage. An award gets a card when its settlement, base price or grant date is missing. An award with no grant date takes the company’s incorporation date until you correct it. Importing the same file again adds no second card for the same plan or award, and each plan and award keeps its record. Where a Carta Summary sheet counts phantom units outstanding but no sheet in the export says who holds them, the plan is recorded with no awards and a card gives the number.

LLCs

An LLC can promise cash tied to the value of its units in the same way. On an LLC the section says phantom units and unit appreciation rights, and it appears although the option screens do not. An LLC award is recorded as paid in cash: paying one in units raises whether the holder becomes a partner, and that is not recorded yet. A phantom unit is not a profits interest.

From an assistant

Every action here is also a tool an assistant can propose and you confirm: create_phantom_plan, edit_phantom_plan, grant_phantom, edit_phantom_award, cancel_phantom_award and record_phantom_payout, with list_phantom_awards and get_phantom_award to read. See Connect your assistant.

What is not built yet

• Phantom awards in an assistant’s view of a holder’s own equity.
• Warnings on payment timing and the short-term deferral deadline, and a liability report for your accountant.