So, what exactly is a loan funded share plan?Simply, a loan...

So, what exactly is a loan funded share plan?

Simply, a loan funded share plan is an arrangement under which a company provides a loan to a participant to fund the purchase of shares (at market value) in that company. A loan funded share plan is a common alternative to more traditional incentive schemes for employees/directors (such as bonuses, or start-up option schemes or tax-deferred option schemes or performance rights plans).

One key difference is that shares are not usually issued at a discount under a loan funded share plan, whereas options or performance rights are often issued at a discount to their market value (or for no consideration) under start-up option schemes or tax-deferred option schemes or performance rights plans. As such, loan funded share plans are usually intended to fall outside of the ESS tax rules, which are enlivened when issuing securities to employees, directors or contractors at a discount.

Does that mean the company has no money to pay its employees?