Phantom equity is a contractual right to receive a payment, not an actual grant of equity. In the second of a two-part series, Moses Singer’s Steve Lueker looks at the challenges of in transferring equity’s full value to an employee looking to recognize long-term capital gain treatment, which can help alleviate the shortcomings of other forms of equity compensation explained in Part 1.

In Part 1 of this article, I discussed equity grants, incentive stock options, nonstatutory stock options, and profits interests. The challenge remains of how to transfer the full value of equity—not just the appreciation from the grant date like a profits interest or an ISO—to an employee who wishes to recognize long-term capital gain treatment upon a change in control.