Phantom Stock Ownership Plan (PSOP)

A Phantom Stock Ownership Plan (PSOP) rests on non-voting instruments, never materialised as real shares, paid out solely in cash to their holder upon a triggering event, most often an exit.

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Despite this lack of share materialisation, a critical point remains: these instruments dilute exit proceeds exactly as if they were real shares. A PSOP can also coexist with a classic ESOP (employee stock ownership plan) within the same company, the two plans then producing a cumulative dilutive effect on the net price received by shareholders.

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The appeal of a PSOP for a company lies in its apparent accounting and tax simplicity: no actual share issuance, no update to the Commercial Register (Switzerland). But this simplicity is misleading for a buyer who fails to provision for it: at exit, the PSOP generates an immediate cash outflow borne by the acquired entity or the buyer, depending on negotiated terms, which reduces the net proceeds available to real shareholders by that same amount.

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In financial due diligence as in business valuation of a startup, leaving a PSOP out of the Fully diluted share count calculation overstates the net proceeds due to real shareholders at exit, a frequent error when such a plan is not clearly disclosed in the bylaws.