Phantom Stock – A smart way of Employee Benefits

Phantom stock is a very interesting concept and is emerging strongly as a powerful tool of Employee Benefits, especially for Startups. It can be described as a type of employee benefit plan whereby employees or advisors of an Organization get various benefits of stock ownership without actually having real ownership of Stock, in exchange for their services.

It is also often known by names such as shadow stock, simulated stock or phantom shares.

Why Companies use Phantom Stock?

Providing employees with a stake in the ownership of the Organization is a very common practice adopted by Companies. ESOPs and Sweat Equity have been a conventional mode of a deferred reward plan for employees. On the contrary, Phantom Stock is a conventional, performance-based incentive plan which entitles an employee the right to receive cash payments after a specific period of time or upon fulfilment of specific criteria and is directly linked to the valuation and the appreciated value of the share price of the company.

Phantom stock gains advantages above real stock on the following points:

  • To prevent diluting the stake of promoters and voting rights as providing voting rights with phantom stock is not mandatory and completely at the discretion of the Company.
  • There are very little complications associated with phantom stock. They are generally paid if employees meet certain terms. If the conditions are not met, there is no responsibility on the part of the companies to pay the same.
  • Setting up a phantom stock plan is much less expensive as compared to setting up ESOPs,
  • It is less time consuming and easy to execute.

It is prudent to carefully plan out the terms and conditions for the phantom stock plan as per the requirements of the Organizations to make the plan effective and profitable for both the parties.

How does it work?

The employer enters into an agreement with employees or advisors for issuing phantom stock in exchange of services. The Agreement should contain all the terms and conditions related to the plan such as:

  • Price of the stock
  • Payout ratio
  • Criteria for eligibility
  • Voting rights associated with the stock
  • Tasks or Goals, if any, that need to be accomplished in order to exercise the option
  • Such other conditions at the discretion of the Company

The Agreement also sets out the mode of redemption of the phantom stock plan. They are usually redeemed in cash. But if the Agreement allows, the payment obligation can also be fulfilled by distributing actual stock to the employees.

Based on the mode of redemption, Phantom Stock can be of two types viz.

  • Appreciation only– In this case, the phantom stock holder receives the difference in the value of the stock at the time of issue and the value at the time of maturity. This means they receive anything above and beyond what the phantom stock was worth when it was granted.
  • Full value– In this case, the phantom stock holder receives the full value of what the stock is worth for, at the time of maturity, instead of the stock appreciation amount as in the former type.


Unlike ESOP’s and Sweat Equity, which can be taxed as Income on the basis of the value of shares issued, Phantom Stocks are not taxed at the time of grant. These are taxed only when there is actual outflow of cash at the time of redemption or maturity of the Stock. This helps in deferring the tax and paying the same only when there is actual benefit arising out of increase in the value of Company’s Shares.

Phantom Stock is a smart scheme to provide benefits without diluting the shareholding and at the same time satisfying employees, advisors and permanent consultants, who wish to gain out of the growth in the Company. It’s a Win-Win for all!

Modes of Funding/Capital Infusion for Startups

A successful business requires investment of time, effort and MONEY for its long term growth and prosperity.  Infusion of funds is an essential pre-requirement, especially for Startups if they want to scale up and make their brand popular and visible.

Innovative and promising Startups or businesses always attract enterprising investors who are ready to stake their money and a get a good return out of the same. The difficult part arrives when the decision on the mode of funding has to be evaluated.

There are a lot of factors which determine the mode of funds infusion. Whether the funds are to be given in exchange of Shares or to be treated as Debt or Convertible instrument depends upon the expectation of return and repayment by the investor and relationship with the Company.

This article will give you a brief about different modes of funds infusion and their applicability:


One of the most common methods of raising funds is by issue of shares of the Company.

Share capital is a long-term source of finance. In return for their investment, shareholders gain a share of ownership in the company, access to voting rights and right to participate in the management.  Shareholders are not entitled to any interest on their investment. They can be paid dividend on their investment depending on the profits of the company which is subject to the provisions of The Companies Act 2013.

The purpose of investing in Share Capital is to reap the benefit or gain through increase in value of shares. For example – Angel Investors who invest at early stages intend to exit by disposing off their shares in next bigger round of investment at a higher valuation.

Share capital is generally of two types: Preference Share Capital and Equity Share Capital.

The major difference between Preference and Equity Shares is that the former does not enjoy voting rights and have a preferred right to dividend as well as return of capital at the time of liquidation.


Most of the investors prefer to invest in Preference Shares to avoid the risk of loss of initial investment in case of liquidation or bankruptcy of the Company. This goes well with the Company also, as Preference Shareholders do not have management and voting rights and hence, there is no interference in the working of the business.


Bonds and Debentures are debt securities. They have an implicit level of safety simply because they ensure that the principal investment is returned to the lender at the maturity date with interest or upon the sale of the security.

Generally, a legal agreement is executed between the Company and the Investor at the time of issue of debentures specifying in detail, the term and conditions of repayment and interest.

Also, the Debenture-holders are creditors of the Company who get preference in repayment of liability over the shareholders, at the time of liquidation.

Debentures are further classified as Convertible or Non-convertible.

Convertible debentures can be converted into equity after a specific period of time. You can read about these under the section “Convertibles”.

Non-convertible debentures do not have the option of equity conversion but are generally coupled with a higher interest rate.


The most commonly used instrument for raising Capital by Early Stage Startups is Convertibles.

Preference Shares, Debentures and Loans – all can come with a convertible option. These instruments provide the benefit of deferring the valuation of the Company to a later stage when the conversion to equity actually takes place.

Convertibles are particularly attractive to those investors who want to participate in the rise of hot growth companies while being insulated from a drop in price should the stocks not live up to expectations.

Convertible Preference Shares or Debentures have the advantage of being fixed-income securities that the investor can choose to turn into a certain number of shares of the company’s common stock after a predetermined time span or on a specific date. The fixed-income component offers a steady income stream and some protection of the investors’ capital. However, the option to convert these securities into stock gives the investor the opportunity to gain from a rise in the share price.

The conversion into Equity Stock takes place through a pre-determined conversion price or conversion ratio which represents the number of equity shares, investors may receive for every convertible preferred share or debenture.


A loan is when you receive money from any person, bank or financial institution in exchange for future repayment of the principal, plus interest. Loans can be either secured or unsecured.

A secured loan involves pledging an asset (such as a car, house) as collateral for the loan. If the borrower defaults, or doesn’t pay back the loan, the lender takes possession of the asset. These loans enjoy a level of safety because of the collateral attached to them.

An unsecured loan is the one which doesn’t have any security attached to it and supported only by the borrower’s creditworthiness. Though there is a risk of non-repayment of money attached to it, but it is easy and less time taking for a company to raise an unsecured loan. The process does not generally require too much paper works and is easy to execute.

A Private Company can take unsecured loan from its Directors or his relatives ONLY. “Relatives” include the ascendants and descendants of the director and their spouses.


The concept of Convertible Notes was recently introduced by the Companies Act making this option exclusively available to Startup Companies.

Convertible notes can be defined as a type of loan or debt security issued in the form of some document or certificate to the investor in return of the money lent to the Company. The amount raised in exchange of Convertible Notes has to be repaid or be converted into equity shares of such startup company at the option of the holder. It should be repaid or converted within a period not exceeding 5 years from the date of issue of the Note. It can also be repaid or converted on occurrence of specified events as per the terms and conditions agreed upon between the parties.

These notes can also be issued to NRIs subject to conditions mandated by RBI in this regard. The minimum amount that has to be raised against issue of Convertible Notes is Rs. 25 lakhs or more in one tranche.

A company can enter into a legal agreement with the Investor at the time of issue of these notes specifying the details of the issue and the terms and conditions of repayment.

Choosing an appropriate mode of funding:

Before choosing an appropriate mode of funding, the pros and cons of each of the methods have to be carefully evaluated. Following points can be kept in mind while choosing the appropriate mode-

  • Whether the company wants to dilute the ownership of the promoters in the Company.
  • Whether the company can afford to include the investors in the management of the entity.
  • Whether the company can afford to pay a fixed sum as interest on debt or loan.
  • Conditions relating to compliances required under different Laws and the cost for the same.
  • Tax benefits available- Interest paid on debt financing is allowed as deduction from profit whereas dividends are paid out of the profits earned and dividend distribution tax is to be paid.

Penalty for Non-filing of LLP annual returns – Can winding up save penalty?

Although Limited Liability Partnership is one of the most popular forms of starting a business, there are various compliances which are required to be followed annually once the business is incorporated.

The Annual Compliances of LLP primarily include:

  • Filing of Annual Return of the LLP in Form 8 – Due date 30th October of the succeeding FY
  • Filing of Financial Statements of the LLP in Form 11 – Due date 30th May of the succeeding FY

Penalty for Non-filing

Late Filing of Form 8 and Form 11 attracts a late fee of Rs.100 per day each per form immediately after the due date till the date the form is actually filed.

In view of the above, one can understand the huge of penalty that can be imposed if there is a substantial delay in filing the annual forms. One should note that these are online forms and cannot be filed without making the fee payment, in any case.

We get numerous queries from many people who formed their LLP but did not carry out any business since the date of incorporation. The most common questions that arise at this point are:

Is it compulsory to complete the annual filings even if the business has not commenced or not been conducted throughout the year?

Yes, it is absolutely compulsory to complete the Annual Filings even if your business has not commenced or not been conducted throughout the year. There is no exemption to annual filings.

Can the LLP be closed without completing the Annual Filings?

No, it is important to complete the Annual Filings before closing down or winding up the LLP.

Many partners of LLP’s are under the impression that if they wind up the LLP, they can avoid the Penalty on non-filing. But unfortunately, this is not the case.  An LLP cannot be wound up without completing the pending compliances as the process of Annual Filings and Winding up is inter-connected. The LLP can be wound up only when all the ROC compliances are up to date and MCA records are updated in this regard.


Partners of LLP’s should understand that winding up of the business is not the solution to escape the imposition of penalties.  Rather they have to comply with all pending filings and update the ROC with the status of affairs, may it be for continuing the business or discontinuance.

In view of the above it is utmost important to get your LLP incorporated from experienced and responsible professionals who could guide you in complying with the ROC Compliances.

Equalization Levy

The digital economy in India is growing at a rapid pace by each passing year. Till recently, most of the Non Resident companies, which form an integral part of providing digital services did not have to pay any tax in India. Neither were they subjected to any withholding taxes, since the performance for the services were not executed in India. Moreover, as they do not have a Permanent Establishment in India, their revenue cannot be attributed to the operations in India. Hence, no tax applies on the same.

Equalization Levy is a recent tax structure introduced in India in order to impose tax on specified services provided by Non-Residents, who earn revenue from India in excess of the threshold prescribed.

Any person or entity which makes a payment exceeding Rs 1 lakh in a financial year to a non-resident technology company for some B2B {Business to Business Services} needs to withhold 6% as Equalization Levy, on the gross amount being paid out.

Equalization Levy
Equalization Levy

Scope of Levy:

  • Equalization Levy is charged only on non-residents of India.
  • If a company is non-resident today and it opens a subsidiary or a PE in India to provide e-commerce services in India, then the Indian subsidiary/PE will be liable to normal Indian Income-tax only and will escape Equalization Levy.
  • This tax is applicable on B2B services and NOT on B2C {Business to Consumer} goods and services.
  • The tax is applicable to only those companies which have no permanent establishment in India.

Scope of Specified Services:

  • Online advertisements
  • Any provision for digital advertising space or any facility or service for the purpose of online advertisement.
  • Any other service which may be notified by the government.

Deposit and Return of Equalization Levy:

The Equalization Levy withheld by the resident buyer shall be deposited by him to the government before the 7th of the succeeding month.

A return of EL needs to be filed on or before the 30th June immediately following the financial year. The responsibility of payment of tax and filing of return is on the Indian Resident making the payment for the Services.

If the Indian resident assessee does not pay tax to the Government of India, he will be liable to tax, interest and penalty under Chapter VIII of the Finance Act. He will also be liable to disallowance of expenditure from his business income under Section 40 (a) (ib).

This law imposes no responsibilities on the Non-Resident Service provider.

Although Equalization is a welcome move by the government, given that the responsibility of deduction of equalization levy has been fastened on the remitter, there is a high probability that non-resident service provider may seek net of tax payments i.e. any tax cost may have to be borne by Indian customer.

On account of limited bargaining power, this proves to be a setback for startups since they would be required to incur higher advertising cost, thus increasing their cost of doing business.

Coworking Spaces in Delhi

As new startup ecosystem is emerged, it is understood that it does not suits the budding entrepreneurs to invest in office space. This creates a great need for affordable Coworking Spaces in Delhi for the young minds. Sometimes investing in an office infrastructure is not possible for early stage businesses.

Coworking spaces involve a shared workplace, say an office, and an independent activity. Unlike a typical office, these coworking spaces are usually not hired by one organization but shared by several startups or freelancers. Shared facilities, namely, WiFi, printers/scanner, parking, IT support, etc. and provisions including cafeteria, kitchens, furnished offices and conference rooms are like the icing on the cake.

Coworking Spaces in Delhi
Coworking Spaces in Delhi

We’ve listed some of the best Coworking Spaces in Delhi that will give any startup, founder or entrepreneur the connectivity, facilities & creature comforts making their work-life more balance and sweet.

1. Innov8

Services Offered: Innov8 offers ready to move in fully furnished office which is consist of modern Bristol and Herman Miller furniture. The bright eccentric lights along with state of the art utilities and several other recreation zones makes it a collaborative shared space of innovation and creativity.
The main amenities offered in Innov8 are Uninterrupted high speed WiFi, Recreational & Breakout Zones, Cafeteria & Lunch Room, Scanners & Printers, Reception & House keeping, Community & Networking Events, Excellent Power Backup, Members only Access Cards, Unlimited Hot & Cold Beverages, Library, Fully equipped meeting rooms, Rooftop garden, etc. It is recognized as one of the top Coworking Spaces in Delhi

Location: Innov8 is located at the heart of the city, Connaught Place (69, REGAL BUILDING, HANUMAN ROAD AREA, CONNAUGHT PLACE, NEW DELHI – 110001) and now is also open in Saket.

Starting Price: Dedicated Desks are available at Rs 12,999/- per month and Hot Desks at Rs 7,999/- per month.


2. 91springboard

Services Offered: This coworking space is also equipped with a garden room as well as a library. Other essentials provided to all the members of 91springboard includes High Speed WiFi, Receive Mail c/o 91springboard, Open 24*7 with Professional security, 24*7 Power backup, Comfortable workstations, Phone booths, Photocopy & Printing, Housekeeping service, Free or Discounted access to events, Company registration documentation, Access to acurated list of service providers, Tea and coffee, Cafe, lounge and games.

Location: 91springboard is a mere kilometer away from Govindpuri Metro Station (E-43/1, OKHLA PHASE II, NEW DELHI, DELHI – 110020).

Starting Price: Rs 6999/- per person/month for own workstation, Rs 7999/- per person/month for a private cabin that can accommodate 4-5 people, Rs. 4999/- per person/month for Part-time (12 days a month)

Private Limited Company Registration -

3. Awfis

Services Offered: Awfis provide exclusive offers across categories like Health & Wellness, Retail, business services, Tech and more alongwith the Complimentary Amenities, like High Speed Internet, Meeting Room Usage, Printing Credits, Hot Beverages, etc.

Location: They operate in several locations including CP, Vasant Vihar, Jangpura, Aerocity etc. Their spaces are known to be some of the best Coworking Spaces in Delhi.

Pricing: They provide coworking spaces as per the coworker’s budget and requirement.

Private Limited Company Registration -

4. ONE Co.Work

Services Offered: The various services provided by ONE Co.Work are aligned with the vision of startups and thus help them move from an idea to a successful venture. They provide Supportive Co-working, Virtual Office, Funding, Networking Events, IT / HR / Admin support, and Mentorship.

Location: ONE Co.Work is located at two prime locations in Delhi, i.e. Connaught Place (G- 36, G-BLOCK, OUTER CIRCLE, CONNAUGHT PLACE, BLOCK G, NEW DELHI – 110001) and Netaji Subhash Place (605, D MALL, NETAJI SUBHASH PLACE, RING ROAD, PITAMPURA, NEW DELHI – 110034)

Starting Price: The palns at ONE Co.Work are flexible with membership options. They start with Rs 1999 per month for 4 day access which also includes access to open sitting & common area, High Speed Internet [LAN/WiFi] and access to Meeting/Conference Rooms at 10% discounted price.

Private Limited Company Registration -
ONE Co.Work

5. CoworkIn

Services Offered: The services in CoworkIn includes Fibre-internet, Hot Desk, Team Rooms, Pet friendly, Unlimited Tea & Coffee, Printing facilities, Conference Rooms, Event spaces, Calling rooms, Flexible plans, weekly events, virtual office, etc.

Location: CoworkIn have four branches in the city, namely, in Greater Kailash-II (W – 129, GREATER KAILASH 2, NEW DELHI), Lajpat Nagar (22A, OUTER RING ROAD, LAJPAT NAGAR-4, NEW DELHI), Nehru Place (39 KUSHAL HOUSE, NEHRU PLACE, NEW DELHI 110019), and Patel Nagar (13/28 GROUND FLOOR, EAST PATEL NAGAR, NEW DELHI – 110008).

Starting Price: Daily Drop-In starts with Rs 399/- per day which includes 1 Day Access, Unlimited internet, Unlimited Tea/Coffee, and Access to Hot Desking area.


6. CoWork

Services Offered: Cowork provide personal spaces and shared spaces for a group of 4-5 peaople to sit together. They can also customize the spaces as per the requirements. Conferences room facility, 24*7 power backup, WiFi, Tea/Coffee, and Networking with other business are other highlights of Cowork.

Location: Cowork is conveniently located at a walking distance from the Mayur Vihar Metro station (101, PRATAP NAGAR, MAYUR VIHAR PH. 1, NEW DELHI).

Starting Price: They have a plan for every work infrastructural need. Starting with Rs 499/- Day Pass to Rs 5999/- for Monthly Plan, Cowork have various subscription plans depending on one’s need and requirements.


7. The Founder’s Cafe

Services Offered: Their amenities include seamless and holistic platform compelling an ecosystem for productivity, Biz Grade Internet for superfast connection with back up line, Cafe, Meeting Rooms, Free Parking, Dedicated Work Desk, Breakout zone, 24*7 Access & Security, Stationary & printing support, Lockers & Mailing address and much more.

Location: The Founder’s Café is located at the heart of South Delhi, on the outer ring road with Okhla Phase 3 Metro escalator at the door step.

Starting Price: A personal desk to create magic starts at Rs 8,000/- per month.

Private Limited Company Registration -
The Founder’s Cafe

8. Stirring Minds

Services Offered: Stirring Minds have a lot to serve at their coworking space. High Speed Wifi, 24/7 Working, Power Backup, Conference Rooms, Mentorship, Rooftop Cafe, Warehousing, IT/HR Admin, Lockers, Inhouse Courier, Printing/Scanning, Library, Video/Sound Studio, 3D Printers, Fitness Equipment, Bunk Beds, Funding Support are to name a few amenities provide by the Stirring Minds.

Location: 2-A/3 Kundan Mansion, Asaf Ali Road, Delhi – 110002

Starting Price: Stirring Minds provide monthly, quarterly and yearly plans for their coworkers. They start with Rs 799/- for a virtual office light, Rs 4000/- for 30 days and many more such plans according to the number of days and amenities required.

Stirring Minds
Stirring Minds