ACCA Advanced Taxation (ATX) Practice Exam

What is the basis for an employer to issue 'matching shares' in a SIP?

1. They can issue shares at market value

2. They may issue further free shares on a 2:1 basis for partnership shares

3. They are required to match employee contributions

4. They must issue only one type of share

The correct answer is: They may issue further free shares on a 2:1 basis for partnership shares

The basis for an employer to issue 'matching shares' in a Share Incentive Plan (SIP) is that they may issue further free shares on a 2:1 basis for partnership shares. This means that for every partnership share an employee buys, the employer can provide two additional 'matching shares' as a reward. This incentivizes employees to invest in the company by purchasing shares themselves, as it offers them an opportunity to receive additional shares without cost, thus encouraging a greater investment in both the company and their own financial future through enhanced share ownership. This structure is designed to promote employee engagement and long-term commitment to the company. It aligns the interests of employees with those of shareholders, fostering a sense of ownership and loyalty within the workforce. The other options do not capture the correct nature of matching shares in a SIP. For instance, while an employer could issue shares at market value, that does not pertain specifically to the concept of matching shares. Similarly, merely being required to match employee contributions does not fit the 2:1 structure of free shares, and the statement about issuing only one type of share does not relate to the flexibility and incentive structure that matching shares offer in a SIP framework. Thus, the correct understanding hinges on the specific