Designing Executive Loan Programs in the Context of Incentive Equity: Key Considerations and Practices

This Morgan Lewis blog post explains how private companies can structure executive loan programs to help executives purchase company stock while maintaining favorable tax treatment. Loans must meet IRS standards including charging at least the applicable federal rate (AFR) interest, having a specified term (typically 7-9 years), requiring personal recourse, and including acceleration clauses to avoid being reclassified as disguised compensation. Section 402 of the Sarbanes-Oxley Act prohibits publicly traded companies from offering such loans to executives.