Commentary on Sections Overview Overview Section 396: Loan to buy interest in employee-controlled company
1110.This section deals with conditions for relief on interest on a loan to buy an interest in an employee-controlled company. It is based on section 361(3) to (8) of ICTA.
1111.This section deals with the conditions relating to the employee-controlled company and ways of investing in it. Section 397 deals with the conditions that relate to circumstances at the time the interest is paid.
1112.The condition in subsection (2) is that the loan is applied in acquiring part of the ordinary share capital of a company that has recently become or becomes an employee-controlled company. As with section 392, relief is available for a loan replacing one that met the conditions in this section.
1113.Subsection (3) defines when a company is “employee-controlled”. The definition requires more than 50% of the issued ordinary share capital and more than 50% of the voting power to be held by persons who are full-time employees of the company.
1114.Subsection (4) provides that, if an individual holds more than 10% of either the ordinary share capital or the voting power, the excess over 10% is regarded as owned by a person who is not a full-time employee of the company and so does not count towards the 50% test in subsection (3).