How to issue phantom units in Carta LLC
LLC Full Administrators can seamlessly create, issue, and share new interest types, ensuring precise and efficient equity administration.
Phantom units can be added using this process of creating a new Interest Type.
How do I create a Phantom Unit interest type?
Navigate to Cap table then Interests and interest types.
Then, select Add interest type.
Select the Custom type and click Next.
Enter the Interest type name and Prefix and define the Authorized units, then click Next.
Authorized Units
Phantom units can either have a fixed authorized total or be issued without a predefined limit.
Options for Authorized Units:
No Specified Authorized Total: Units can be issued as needed, which is useful when awards are based on performance metrics.
Authorize a Specific Quantity: Sets a fixed number of units available (e.g., 100,000 total units). Helps control dilution and structuring allocations.
Share a Pool of Authorized Units with Another Interest Type:
Used when phantom units share an authorized pool with equity-linked incentives (e.g., stock appreciation rights).
Ensures the total unit supply across all incentive plans stays within limits.
Example: If an LLC has 150,000 total units shared between phantom units and stock appreciation rights (SARs), both will be drawn from the same authorized pool.
After defining authorized units, enter the Interest Behavior details and click Next.
Vesting (On / Off)
Vesting determines how and when phantom units are earned:
Time-Based Vesting: Units vest gradually (e.g., 4 years with a 1-year cliff).
Performance-Based Vesting: Units vest based on milestones (e.g., $10M in company revenue).
Hybrid Vesting: Combination of time- and performance-based vesting conditions.
If vesting is turned off, phantom units are fully earned upon issuance—but they do not grant LLC membership.
Original Issue Price (On / Off)
Tracks the price per phantom unit at the time of issuance.
Useful when holders pay for their units rather than receiving them for free.
Helps track valuation and taxes during future transactions (e.g., repurchases).
Invested Capital (On / Off)
Tracks the capital contributed when acquiring phantom units.
Turn Off: If units are granted as compensation.
Turn On: If acquiring units requires an initial capital investment.
This is mostly relevant if phantom units tie to LLC capital accounts.
Appreciation Rights (On / Off)
Defines whether holders benefit from full enterprise value or only from increased value over time.
No Threshold: Holders benefit from full unit value.
Per-Unit Threshold: Gains apply only above a set value (e.g., units gain only if they exceed $5/unit).
Overall Threshold: A company-wide hurdle must be met for value accrual (e.g., $10M valuation threshold).
Useful for performance-based compensation and phantom stock appreciation rights (SARs).
Repurchase (On / Off)
Allows the company to buy back phantom units after a triggering event (e.g., employment termination).
Prevents phantom units from remaining outstanding indefinitely.
Helps maintain equity allocations over time.
Key Triggers to Define:
Voluntary departure vs. termination (cause/no cause).
Repurchase price (FMV, issue price, or formula-based).
Exercisable (On / Off)
Indicates whether phantom units must be exercised to receive benefits.
Rarely used for phantom units, but applicable if holders pay a strike price later.
Example: An employee can “purchase” vested phantom units at $5/unit after a 3-year vesting period.
83(b) Elections (On / Off)
The 83(b) election toggle enables or disables 83(b) tax filings. If enabled, Carta will generate an 83(b) Election form upon issuance and allow holders or administrators to record elections. You will also be able to report on the status of 83(b) Elections.