Loan Funded Share Plans in Australia

In an interesting variation on employee stock purchase plans, loan funded share plans (LFSPs) in Australia allow an employer to make an interest-free loan to employees to buy shares. The shares are held in trust by the employer until the loan is repaid. The recourse on the loan is limited to the shares if the share price falls below the price at which the shares were purchased. The right to take possession of the shares is subject to vesting. Any dividends paid on the shares are used to repay the loan.

The structure of a LFSP is relatively simple. The employer makes an interest-free limited recourse loan to enable the employee to acquire shares in the employer for market value. The limited recourse feature of the loan means that the employee is protected from downside risk if the value of the shares falls below the outstanding loan balance.

Anthony Bradica of Hall & Wilcox in Australia recently wrote an article with more details on the plan.