The Shadow Equity Agreement is designed for companies operating under Danish law who wish to incentivize key employees or contractors without diluting actual shareholding. This document type is particularly valuable for private companies, startups, and subsidiaries of foreign entities where direct equity participation might be complicated by corporate structure or shareholder restrictions. The agreement creates a contractual framework that simulates share ownership, providing beneficiaries with financial rights similar to those of shareholders while maintaining the company's existing ownership structure. It includes comprehensive provisions for vesting, valuation, and payment triggers, all structured to comply with Danish corporate, employment, and tax regulations. The document is especially relevant in scenarios where traditional equity arrangements are impractical or undesirable, offering a flexible alternative that achieves similar incentivization goals.
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Key Requirements PROMPT example:
Shadow Equity Agreement
I need a Shadow Equity Agreement for our Danish tech startup to grant our new CTO 5% of shadow equity, with a 4-year vesting schedule starting March 1, 2025, and accelerated vesting provisions in case of a company sale.
1. Parties: Identification of the company and the beneficiary of the shadow equity rights
2. Background: Context of the agreement, relationship between parties, and purpose of the shadow equity grant
3. Definitions: Key terms including Shadow Equity Units, Fair Market Value, Exit Event, Vesting Period, and other technical terms used throughout the agreement
4. Grant of Shadow Equity: Number of shadow equity units granted and their nominal value or percentage representation
5. Nature of Shadow Equity Rights: Clear statement that rights are contractual only and do not constitute actual equity ownership or company membership rights
6. Vesting Provisions: Vesting schedule, conditions, and requirements for shadow equity rights to become exercisable
7. Valuation Mechanics: Method for calculating the value of shadow equity units, including timing and procedure for valuations
8. Payment Triggers: Events that trigger payment obligations (e.g., exit events, predetermined dates) and calculation methods
9. Termination Provisions: Effect of employment termination or other relationship changes on shadow equity rights
10. Confidentiality: Obligations regarding confidential information related to the shadow equity arrangement
11. Taxes and Costs: Responsibility for taxes, withholding obligations, and other costs related to the shadow equity
12. General Provisions: Standard legal provisions including governing law, amendments, notices, and entire agreement clause
1. Non-Competition and Non-Solicitation: Required when the agreement needs to include restrictions on competitive activities and employee/client solicitation
2. Tag-Along Rights: Include when shadow equity holders should have the right to participate in certain company transactions
3. Anti-Dilution Protection: Include when protection against dilution of shadow equity value is desired
4. Dispute Resolution: Specific dispute resolution procedures beyond standard court jurisdiction, such as arbitration
5. Currency Provisions: Required for international agreements where multiple currencies may be involved
6. Information Rights: Include when shadow equity holders should receive specific company information or financial reports
1. Schedule 1 - Vesting Schedule: Detailed breakdown of vesting dates and percentages
2. Schedule 2 - Valuation Methodology: Detailed formula and examples for calculating shadow equity value
3. Schedule 3 - Notice of Exercise Form: Template form for exercising shadow equity rights when applicable
4. Schedule 4 - Worked Examples: Numerical examples showing how payments would be calculated in various scenarios
5. Appendix A - Consent Forms: Required forms and approvals from relevant parties
6. Appendix B - Tax Treatment Summary: Summary of applicable tax treatment under Danish law for reference
Authors
Relevant legal definitions
Agreement
Beneficiary
Board of Directors
Business Day
Cause
Company
Company Value
Confidential Information
Danish Business Day
Effective Date
Eligible Employee
Exercise Date
Exercise Notice
Exercise Period
Exercise Price
Exit Event
Fair Market Value
Good Leaver
Grant Date
Initial Public Offering
Liquidation Event
Payment Date
Performance Targets
Poor Leaver
Qualified Exit
Reference Price
Related Parties
Retention Period
Shadow Equity Pool
Shadow Equity Units
Share
Shareholder
Termination Date
Termination of Employment
Total Shadow Equity Units
Triggering Event
Valuation Date
Valuation Methodology
Vested Shadow Equity Units
Vesting Commencement Date
Vesting Period
Vesting Schedule
Beneficiary
Board of Directors
Business Day
Cause
Company
Company Value
Confidential Information
Danish Business Day
Effective Date
Eligible Employee
Exercise Date
Exercise Notice
Exercise Period
Exercise Price
Exit Event
Fair Market Value
Good Leaver
Grant Date
Initial Public Offering
Liquidation Event
Payment Date
Performance Targets
Poor Leaver
Qualified Exit
Reference Price
Related Parties
Retention Period
Shadow Equity Pool
Shadow Equity Units
Share
Shareholder
Termination Date
Termination of Employment
Total Shadow Equity Units
Triggering Event
Valuation Date
Valuation Methodology
Vested Shadow Equity Units
Vesting Commencement Date
Vesting Period
Vesting Schedule
Clauses
Definitions
Grant of Rights
Nature of Shadow Equity
Calculation of Value
Vesting
Exercise Rights
Payment Triggers
Exit Events
Transfer Restrictions
Termination Rights
Good Leaver/Bad Leaver
Valuation
Anti-dilution
Information Rights
Tag-Along Rights
Drag-Along Rights
Confidentiality
Non-Competition
Non-Solicitation
Tax Provisions
Representations and Warranties
Notices
Assignment
Amendment
Severability
Entire Agreement
Governing Law
Dispute Resolution
Grant of Rights
Nature of Shadow Equity
Calculation of Value
Vesting
Exercise Rights
Payment Triggers
Exit Events
Transfer Restrictions
Termination Rights
Good Leaver/Bad Leaver
Valuation
Anti-dilution
Information Rights
Tag-Along Rights
Drag-Along Rights
Confidentiality
Non-Competition
Non-Solicitation
Tax Provisions
Representations and Warranties
Notices
Assignment
Amendment
Severability
Entire Agreement
Governing Law
Dispute Resolution
Relevant Industries
Technology
Financial Services
Professional Services
Manufacturing
Healthcare
Biotechnology
E-commerce
Software Development
Consulting
Real Estate
Renewable Energy
Educational Technology
Media and Entertainment
Retail
Relevant Teams
Legal
Human Resources
Finance
Executive Leadership
Operations
Sales
Business Development
Research and Development
Product Development
Information Technology
Relevant Roles
Chief Executive Officer
Chief Financial Officer
Chief Technology Officer
Chief Operating Officer
Senior Developer
Technical Lead
Sales Director
Managing Director
Head of Business Development
Senior Consultant
Key Account Manager
Product Manager
Department Head
Regional Manager
Principal Engineer
Research Director
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