Comment by Shamiq | Hacker News Reader

Comment by Shamiq | Hacker News Reader

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Here's something from the wikipedia page on Convertible Bonds:

Hybrid bonds typically are issued as loan capital, but the issuer retains the right to exchange or convert the bonds into convertible preference shares with similar conversion rights and income. The purpose is generally to ensure that the bonds (as loan capital) have the tax offset-ability (against taxable profits) of loan interest, and perhaps pay gross to qualifying investors. At the same time, the ability to change the bonds into cumulative or non-cumulative preference capital should mean that they pose less balance sheet risk. The issuer only achieves the best of both worlds if the hybrid bond is structured so that non-payment of interest does not constitute an event of default.

http://en.wikipedia.org/wiki/Convertible_bond

Convertible bonds would still require paying for the shares, right?

Part of the problem is that the shares are too expensive for the recipients of them to just buy them. Essentially, they should have been allocated as initial founder stock but weren't (due to various reasons that I won't go into).

At the moment, from what I hear, stock options seem to be the best way to allocate shares without needing a large transfer of money from the recipients of the shares to the company (or some other party).

Just to clear up, I am advocating zero-coupon convertibles.

Yes, you'll have to get the corporation to cover the cost of the shares. However, convertibles will give you a tax break since they go onto balance sheets as a liability, and so they effectively give you a ~35% discount.

The flip-side is that recipients will have to pay taxes on the implicit coupon payments. You really need to talk to a corporate accountant to get more details, and whether this is even a legal option for you, but definitely look into it.

EDIT

I misread your question. The payment becomes the responsibility of the issuing corporation, not the individual receiving the stock. That is a more clear answer :)

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