April – May 2016

Featured In This Issue


Keeping Pace with Market Trends

Now that “normalcy” has returned to the Carolinas real estate market after the Great Recession, the region is poised for accelerating growth for years, says CEO Pat Riley of Allen Tate Co., despite issues of new home affordability and a likely brief, cyclical recession in 2019. Construction labor is slowly coming back, materials are off-the-chart expensive, and land is back at pre-recession prices per acre. So new homes are now 15 to 18 percent more expensive.

A+ Difference: People, Vision  Stength

Allen Tate Keeps Pace with Market Trends

Now that “normalcy” has returned to the Carolinas real estate market after the Great Recession, the region is poised for accelerating growth for years, despite issues of new home affordability and a likely brief, cyclical recession in 2019.

According to Pat Riley, president and CEO of the Allen Tate Companies and a former chairman of the Charlotte Chamber, the Interstate 85 corridor between Raleigh and Greenville, S.C., continues to attract a high number of corporate transferees, from young workers to retirees, who are looking for housing.

Charlotte is a Beacon

“Charlanta, the I-85 corridor, right now is the fourth most productive region in the United States and the 11th most productive region in the world,” Riley touts. “The 11th in the world, the fourth in the United States, the same gross output as the entire country of South Korea.”

“We don’t compete against the Triangle, the Triangle doesn’t compete against Charlotte, and we don’t compete against the Upstate. We don’t have what the Triangle has, the Triangle doesn’t have what we have, and we don’t have what the Upstate has, but together, we are a compelling story to the world.”

Raleigh leads the top cities for STEM (Science, Technology, Engineering and Mathematics) graduates. On the I-85 corridor, Chapel Hill-Durham is the only area below the U.S. rate in employment growth. The Charlotte region leads in employment growth, with the arts, theater, sports, food and entertaining and institutes of higher learning, which makes it attractive for young people looking for work and a place to establish themselves.

“Young folks are not buying until they’re sure about employment,” Riley says, adding that delaying marriage is an added factor. “They will come to the Carolinas and tend bar until they find a job. We’re just like Austin, we’re just like Nashville.

“They would rather come to the Charlotte region as a single person than stay in the Triangle. They might go back to Cary when they’re ready to settle down, but the reality is we are beacon for young people right here where you and I sit.”

The region is also second only to Florida in attracting older workers and retirees.

“We know about corporate moves, but there’s another move that nobody is keeping stats on and that’s the number of folks coming here to follow grandkids and kids, and coming here for second careers and to retire. Florida is the golden egg—it still leads the country—but the reality is we are the best alternative because of our cost of living and proximity to the mountains and beaches, quality medical facilities and big city amenities.”

Recession Bigger Than In-migration

Riley remarks that the population increases had made him overly optimistic about Charlotte’s resistance to recession in 2008.

“I had thought that we would not be participating in this recession,” he recalls, “that we were not ready to participate because of in-migration. Folks were coming here, 30,000 a year, right through the recession. But I was so wrong. This was much bigger than in-migration.”

Since World War II, Riley says, such bubbles in the housing market had been limited largely to the West Coast.

“All of a sudden, the roaring 2000s happened and we became part of what happens in California every 10 years,” Riley observes. “We used to snicker, ‘There they go again.’ San Francisco is up, then the bubble breaks and then it goes back down. And we, especially on the East Coast, said, ‘We’ll never participate in that.’ Well, the whole country participated in that phenomenon this time around.”

Allen Tate Co. had $4.1 billion in sales in 2004, and $5.71 billion with 24,500 closings in 2006. The housing market was on fire.

The rapid rise in housing values, encouraged partly by government efforts to increase home ownership, allowed folks to own a home that should not have. It also led many people to borrow against their home equity at unprecedented levels.

“What happened is homes went up so fast that our friends in the banking industry said, ‘You know what? What do we care if we lend people’s equity back to them? What do we care? If a home is going up 5, 10, 15, 20 percent a year, what do we care? What’s our risk?’” Riley explains. “So what we had for the first time in history, we borrowed the equity in our homes for this, that and everything.”

“That was solace for our old age. We gave that away. It was in some cases what we needed for a rainy day; we gave that away. So it was a double-edged sword because for the majority of Americans, their wealth is in their homes. It’s forced savings. That mortgage payment? So much goes to principal, and we’re not, as Americans, good savers. That’s why the mortgage was our safety net.”

Changes in lending practices, a downturn in the stock market that made real estate a more attractive investment; and record-low interest rates fueled the perfect storm. In those heady days, among other things, Allen Tate sold 331 condominiums in five weeks in a single Charlotte development.

“This was the perfect storm,” Riley comments. “The stock market went from 19,000 down to 8.5, 9, and what did we all do? We ran. We ran from the equities and where did we run? We ran into real estate. If we were wealthy, we were down in Naples, buying two condos instead of one. International money was coming into the four corners of America because they saw appreciation of housing and said, ‘Where can we have safe money in America?’”

The recession dramatically slowed home sales except in cases of necessity, such as death, divorce, relocation, or foreclosure, who would sell even when their homes were devalued.

“We were dancing for survival,” Riley recalls. “The only people who moved had to move.” Our company once had 51 offices—building wherever Harris-Teeter or Target identified a desirable demographic.”

We’ve consolidated to 37 offices in 2009, but since added four locations, for a total of 41 locations today across the company’s footprint in North and South Carolina.

Post-recession and Pent-up Demand

The post-recession economy is dealing with pent-up demands on several fronts, including the older Silent Generation that delayed moves to downsized housing because their longtime, paid-for homes’ values were depressed in recent years.

“They needed to move to assisted living or independent care,” Riley explains. “But they didn’t sell their homes, and we—as their kids—advised them not to because the homes were at the lowest values they’d ever been, so they didn’t make those moves.

“So that generation now is really active, and we as their kids should be pushing them to get to where they need to be. You can see from the facilities being built up and down our roads and highways that we are fertile ground for this type of housing.”

On the other end of the spectrum, the Millennials have delayed marriage and childbearing into their 30s, partly because of a bleak job market, high student loan debt, and the experiences of their parents’ divorces and job losses.

Millennials now make up 36 percent of the buying market, but they have been late to the dance. Historically, this age group would now be in their second or third home, not buying their first. Their delayed buying set up a nine-year gap, including the recession, before the typical pattern of a starter home followed by move-ups even began.

But the younger cohorts of this generation, in their early 20s, are making a different decision—buying a home as soon as possible.

“They’re not waiting,” Riley remarks. “They might not be in a long-term relationship; but as a single person, they’re buying. They want to get on this ownership bandwagon as soon as possible to take advantage of the appreciation that’s out there, as well as low interest rates.”

Providing affordable housing for that market is especially challenging because of increased expenses within the industry, in addition to tighter lending requirements. Labor, materials and land are all at or near record costs. And the appraisal lag of needed comps has been a drag.

“The headwind for young adults for home ownership is as strong as it’s ever been,” Riley points out. “For the first time in history, labor for new homes is at an all-time high. We lost a lot of our construction labor, a lot of it, and it’s slowly coming back, and materials are off-the-chart expensive, and land is back at pre-recession prices per acre. So new homes are now 15 to 18 percent more expensive than the same house down the street.”

Buyers have often paid premium prices because they wanted builders to provide modern features such as open floor plans, hardwood floors, outdoor living space, and connectivity, but many are now experiencing sticker shock at the price gap with older homes.

“When prices went down double-digit, what do you expect when the market gets better?” Riley asks. “They go up double-digit. The only persons that got hurt in the recession were the people who bought in 2007 or 2008 at the peak and had to sell in 2008 or 2009. The rest of us are back, and probably ahead unless we haven’t maintained those homes.

“Everybody’s predicting a 5 percent appreciation rate again this year. This is higher than we anticipated because historically since World War II, it’s been about 3.5 percent. So we’re still ahead of history, and that’s caused by lack of supply.

“We’ve got to get back up to that 1.5 million new home starts in America. We’re jogging; we’re not sprinting. We can’t get the land developed quickly enough. We can’t get through the permit process quick enough, and we can’t get the labor that we need, so it’s going to lag a little bit from demand.

“Let’s be really candid. Part of the inventory shortage is because the Baby Boomers are downsizing much, much later than earlier generations. While this will boost the condo market in the future, it’s a huge cause of lack of inventory.

“We’re starting our six-year, eight-year, 10-year trek,” Riley says. “We Boomers are much later than generations before us in downsizing, because we’re healthier and we’re living longer. We’re still out there playing and exercising and thinking that we’re in our 30s. We’re not ready to downsize yet. We are just starting our downsize trek. That’s why the inventory gap will diminish over time. We are just slow to the draw.”

Recovery With Reservation

However, many Boomers are remodeling to enjoy the upgrades now that will be necessary when it becomes time to sell, comments Riley.

“The condo market is typically the first one into a recession and the last one out. Lenders don’t like to lend on a condo project unless 40 percent of a building is owner-occupied. A lot of these towers that are built for conversion will convert in the next couple of years because there is a thirst for a home in the mountains or at the beach and a home here that I can lock and go visit my grandkids in whatever city they are, or to my getaway home. The future of condos is strong if they get built.”

With more than 80 percent of homeowners holding mortgages at very low interest rates, the decision to buy another house might become complicated if interests rates rise as expected.

“Never before in history have so many Americans been sitting in a home with mortgage rates of less than 4 percent. We have never had that. I don’t even know how it’s going to play out,” Riley muses.

“I hear the back-and-forth, ’Honey, we have a mortgage at 3-5/8 percent. Should we really buy this house at 7 percent?’

‘Seven is a point lower than the historic average since 1950 of 8 percent. Seven is great and we can still deduct the interest.’

‘But do we really need this extra bedroom? How big do we need this extra fireplace outside?’

“There’s going to be some discussions when you’re leaving rates under 4 percent. It’s going to be interesting how this plays out,” Riley says, more than a little curious.

Riley says that experts expect a cyclical recession in 2019 (similar to 1990 and 2000) as the government may have to raise interest rates to curb another inflation cycle. But it will last only about 18 months and not be in any way similar to the 4.5-year recession that started in 2008.

“What they’re figuring now is that by 2019, we are going to be in an inflation cycle again, and the only way America knows how to slow it down is to raise interest rates, slow down housing,” he explains. “Housing always goes in first. We always go in first—we’re the first one out, but we’re the first one in when it comes to a recession, and everything else follows.”

Last year, the firm had $5.16 billion in sales on 21,595 closings, the third best in its history. Riley expects another increase of 5 to 6 percent this year.

The improvement in real estate sales is occurring even though new housing starts are still far behind pre-recession levels.

“We used to do a million and a half new homes a year in America,” Riley says. “This year, we’re probably going to do 750,000. We’re millions of new homes behind in America. We are thousands short in our region.”

Riley summarizes the company’s performance: Allen Tate achieved near-record sales in 2015 with far fewer new home purchase opportunities and in a tightened lending environment. In the past two years, only one-fourth of buyers were putting down 3 percent or less—nearly twice that many were making such small down payments in 2009.

“This is doing it the right way, but this is also showing you how healthy the market is where you and I choose to live, work, and play,” Riley comments. “It’s a beautiful thing.”

Allen Tate Co., Inc.

6700 Fairview Road

Charlotte, N.C. 28210

Phone: 704-365-6910;


Principal: Patrick C. Riley,
President and CEO

Founded: 1957

Recognition: Largest real estate company in the Carolinas; ranked #6 among the country’s largest independently owned, non-franchised brokers, and #13 among all brokers, based on closed transactions sides for 2015 (REAL Trends 500)

Business: Residential real estate and real estate-related services.



A Sign of Good Things to Come

Thomas W. Camp, President and CEO; Stephanie Rhodes, Charlotte Regional Executive; Cecily Durrett, Director Relocation and Business Development

One of the most trusted brands in the world focused on building strong client relationships, Berkshire Hathaway HomeServices Carolinas Realty has been helping families in the Charlotte region find their dream home for over 36 years. According to CEO Thomas Camp, the company’s tag line, “We make great neighbors,” is their vision, striving to have a meaningful impact on the neighborhoods and communities they serve.

Hello, Neighbor

A Sign of Good Things to Come

Of all the events that take place in someone’s life, one of the most important and exciting milestones is buying a home, especially if that home is their first.

For most people, a home is not only their single largest financial asset, but it’s also where they raise their families and where life-long memories are made. Our homes, in so many ways, reflect who we really are.

But, by the same token, buying a new home or selling an existing home can be a daunting and stressful time in a family’s life, especially if it coincides with a job change or relocation to a new city.

Buying or selling a home represents a huge investment of time and money, and involves a long list of tasks that most people just don’t do very often. Helping guide a family through the home buying process is the job of a licensed Realtor, a real estate professional with the knowledge and experience needed to navigate the sometimes imposing world of buying or selling a home.

With one of the most trusted brands in the world and a set of values focused on building strong client relationships, Berkshire Hathaway HomeServices Carolinas Realty has been helping families in the Charlotte region find their dream home for over 36 years now.

Thomas W. Camp
Thomas W. Camp

An Admired and Respected Brand

Berkshire Hathaway HomeServices Carolinas Realty (BHHS Carolinas Realty) is a subsidiary of HomeServices of America (HSA), the second largest independent residential real estate brokerage firm in the United States. An affiliate of Warren Buffett’s Berkshire Hathaway, Inc., HSA was founded in 1998 when Berkshire Hathaway acquired two leading real estate brokerage firms in Iowa and Minnesota. After a series of subsequent acquisitions, HSA now owns over 30 subsidiary brokerage firms in 19 states.

BHHS Carolinas Realty traces its roots all the way back to 1979 as Wightman Helms, a Charlotte-based real estate company started by Muriel Helms, the first woman chairman of the Charlotte Chamber of Commerce.

After signing a franchise agreement with the Prudential Real Estate affiliates network, Wightman Helms became Prudential Carolinas Realty, later merging with Prudential franchisees in the Triad and Triangle to form a real estate company with a presence spanning North Carolina’s three most dynamic markets. In the spring of 2004, HSA acquired Prudential Carolinas Realty.

Just over seven years ago, Prudential Carolinas Realty acquired York Simpson Underwood, one of the leading real estate firms in the Raleigh-Durham-Chapel Hill market. York Simpson Underwood had been operating in that area since the early 1970s and had an outstanding reputation and brand in the marketplace. In order to leverage the existing brand equity, all of the Triangle area offices of the combined company began operating as York Simpson Underwood.

Then five years ago, Prudential Carolinas Realty acquired Yost and Little Realty, the leader in the upper-tier home market in Greensboro. Yost and Little had operated in the Greensboro area since 1928, so they also retained the Yost and Little name for that market.

“Warren Buffett’s operating model has always been to acquire solid companies with strong leadership and significant market share and let them continue to operate as they always have and continue to grow and prosper,” says Thomas W. Camp, president and CEO of BHHS Carolinas Realty. “That is basically our philosophy as well.”

HSA also acquired several other Prudential franchisees around the country, eventually becoming the largest Prudential franchisee in the United States. So when Prudential Financial decided to exit the real estate brokerage business, HSA acquired the entire Prudential Real Estate affiliates network. All of the old Prudential affiliates—including hundreds of independently-owned Prudential franchisees—became Berkshire Hathaway HomeServices beginning in September 2013.

“I really believe that our Berkshire Hathaway brand gives us a distinct advantage in the market,” says Camp. “Berkshire Hathaway is number three on Barron’s list of the world’s most respected companies, and it is the number three company on Fortune’s list of the world’s most admired companies.

“The reception of our name in the marketplace has exceeded all of our expectations. It is absolutely amazing the impact that it has had on attracting sales associates, who are the life blood of our business. But it has also helped with clients, both at the corporate level for relocation business, as well as the individual home buyer and home seller.”

Today, the company does business as Berkshire Hathaway HomeServices Carolinas Realty in Winston-Salem/Kernersville and Charlotte, as Berkshire Hathaway HomeServices Yost and Little Realty in Greensboro, and as Berkshire Hathaway HomeServices York Simpson Underwood Realty in Raleigh-Durham-Chapel Hill-Cary. But all three markets are consolidated as a single corporate entity with a consolidated management structure. They were recently recognized as the 11th-ranked Berkshire Hathaway HomeServices company in the country.

The company has 13 offices in North Carolina with over 790 sales associates. BHHS Carolinas Realty has three offices in Mecklenburg county—SouthPark, Ballantyne, and Lake Norman—with over 160 sales associates serving the Charlotte region.

A Value-Driven Relationship-Based Business

According to Camp, the company’s tag line—“We make great neighbors”—is more than just a catchy phrase. It is truly their vision of who they are as an organization. They strive to have a meaningful impact on the neighborhoods and communities they serve.

“We live by four key values,” he explains. “Number one, we are committed to exceeding expectations for exemplary service and professionalism in everything we do. Number two, we build lasting relationships, based on trust and care with our clients and the communities we serve. Number three, we partner with our associates to create an environment that fosters success and meaningful careers. Finally, most importantly, we exist to redefine home buying, selling, and ownership by integrating all of the elements of the transaction into a seamless real estate experience.”

This seamless experience includes not only traditional real estate brokerage services, but relocation services and a wholly-owned mortgage company that is the largest in-house mortgage company of any real estate firm in the country. They also have their own title insurance company and a private-branded home warranty company.

“We believe that the relationship always must come first,” continues Camp. “People do not buy or sell for our reasons, they buy or sell only for their reasons. So it is really important that, in a collaborative fashion, we get to know our clients, we find out what is important to them, and we get to know what their dreams are for a home.”

The last nine years have been difficult in the real estate business, but thanks to an improving economy and the success of BHHS Carolinas Realty’s relationship-based business model, 2015 was the company’s best year since 2007.

Almost $2 billion of residential real estate was sold statewide in over 7,200 transactions, and Camp says 2016 is off to an even better start. He adds that home values have generally recovered well from the recession, with the possible exception of the higher tier above $750,000. Available inventory is still a bit tight, so values should continue to move up.

Over the last year, new construction has made up only about 20 percent of sales because builders have been a bit slow initiating new projects. But Camp says builders are now finally starting to bring new inventory to market in greater numbers, so he thinks new home sales will begin to rebound toward pre-recession levels in 2016.

While the company’s average sales price for 2015 was right around $290,000 statewide, Camp says their sweet spot in Charlotte is in the $300,000 to $350,000 range. But based on the trends he is seeing in the market, he believes that the greatest growth potential is in the under $250,000 market, because that segment has rebounded more dramatically than others.

Helping Charlotte Grow

BHHS Carolinas Realty’s Relocation and Corporate Services Division assists companies and families who are relocating to or from the Charlotte region. In addition to helping someone find a new home or sell their existing home, the relocation team also provides group move management services, assists with temporary housing, offers orientation tours of the area, and many other services that help people cope with the stress that surrounds a work-related move. The relocation team also works with local economic development officials to help recruit new companies to the Tarheel state.

“Working with relocation is a special privilege in our business, because you’re working with families who are under incredible stress,” says Cecily Durrett, director of relocation and business development. “I have 13 folks across the state who get up every day to make sure those families can focus on the right things.”

Cecily Durrett
Cecily Durrett

“The trends we see are clearly on the uptick for Charlotte and the rest of the state,” continues Durrett. “It is a very exciting time because companies are figuring out that North Carolina is an inexpensive place to do business, and that the talent pool which we have in Charlotte and across the state is beyond compare.”

When a major international company was recently considering North Carolina for a headquarters move, Durrett and her team jumped into action.

“We put a team of agents together who knew the market inside and out to work with the advance team from the prospect and then with the firm’s principals who came in to learn more about the community,” recalls Durrett. “While that company ultimately chose Atlanta, in the process, we built some great relationships.”

Even though that relocation prospect went elsewhere, when their CEO learned that an old friend was also considering moving his company to North Carolina, he recommended that his friend talk to Berkshire Hathaway. Durrett began conversations with that second company, and they are indeed planning to relocate to our state.

“My job in part is to find those companies and those individuals who are beginning to have some curiosity about what it is like to live here,” explains Durrett. “We want to find them at a time when we can be helpful and be a resource to them as they make those very important decisions. Of course, we often do that work with terrific partners, such as the Charlotte Chamber and the Charlotte Regional Partnership.”

Making Great Realtors

16.03-04_BHHS_Stephanie Rhodes_S
Stephanie Rhodes

The centerpiece of the real estate business is the individual Realtor, so recruiting and retaining top talent is critical to the success of any real estate business. But it’s also important to be sure that the Realtor is a good fit for the company culture and shares the same values. “We look for people that share in our values and that share in our ethics, our morals, and our professionalism,” says Stephanie Rhodes, the Charlotte regional executive for BHHS. “I tell them right off, relationships come first and transactions will follow. Our managers are all very hands on—they are coaches—so we can give our Realtors the support and attention to do well in the industry.”

BHHS Carolinas Realty uses their “Perfect Agent Profile” to aid in selecting the right Realtors to join their firm. They partner with a vendor that has a profile test called the “Core Capacity Index.” Over half of the existing sales associates have taken the test, so each new candidate takes this same five to 10-minute test to measure how they compare to the top performing agents. Rhodes says the test is not fool proof, but is a very good barometer of success.

“For 90 percent of the families we serve, their home is their largest single financial asset,” concludes Camp. “It’s their home. It’s their nest. It’s their shelter. It is where their deepest relationships exist, and where their most cherished memories are made.

“So we take that very, very seriously here. We as an organization are committed to the relationship with our sales associates, and every day we encourage our associates to focus on their relationships with their clients first. When we get that right everything else takes care of itself.”

Berkshire Hathaway HomeServices
Carolinas Realty

Ballantyne Office

3420 Toringdon Way,
Ste. 200

Charlotte, N.C. 28277

Phone: 888-778-2276

Parent Company: HomeServices of America (HSA), a Berkshire Hathaway, Inc. affiliate

Principals: Thomas W. Camp, President and CEO; Stephanie Rhodes, Charlotte Regional Executive; Cecily Durrett, Director Relocation and Business Development

Employees/Sales Associates: 890

In Business: Since 1979

Offices: 13 offices across North Carolina’s three major markets as Berkshire Hathaway HomeServices (BHHS); BHHS Carolinas Realty in Charlotte and Winston-Salem, BHHS York Simpson Underwood Realty in the Triangle region, and BHHS Yost & Little Realty in Greensboro

Business: Full-service residential real estate brokerage firm, also providing mortgage loan originations, title insurance services, home warranty protection, and relocation services.


Seamless Integration of Expertise Yields Synergies

Scott M. Stevenson, Charlotte Managing Partner; David H. Conaway, Warren P. Kean, Steele B. “Al” Windle III, [Representative] Partners

Shumaker, Loop & Kendrick believes effective legal solutions come from fully understanding clients’ goals, visions, challenges, and obstacles, and knowing how to design answers that align with their values and culture. “Our firm’s culture is still deeply grounded in its Midwestern, straight-forward, no-nonsense work ethic,” confirms Charlotte partner Warren P. Kean. “We credit much of our growth and success on the foundation that was begun in Ohio.

 Involved & Evolved

 Seamless Integration of ExpertiseYields Synergies of Service

 The law firm of Shumaker, Loop & Kendrick believes effective legal solutions come from fully understanding clients’ goals, visions, challenges, and obstacles, and knowing how to design answers that align with their values and culture. These solutions require nimble representation that quickly discerns the important issues from the inconsequential across a wide spectrum of business and legal disciplines.

Warren Kean
Warren Kean

Originating in Toledo, Ohio, over a century ago, Shumaker is a full-service business law firm and one of the 250 largest in the U.S., with five offices from Ohio to North Carolina to Florida. As its Charlotte office demonstrates, Shumaker’s emphasis on the seamless integration of expertise yields synergies of service for its clients.

Then, in the mid-’80s, when one of the firm’s partners became the CEO of a national company based in Tampa, it was a logical evolution to build a presence in the fast-growing Sun Belt, alongside its surge in manufacturing expansion. So, in 1985, Shumaker opened a Tampa office.

Recognizing the population growth in the Southeast region, and rapidly expanding growth of manufacturing along the I-85 corridor in the Carolinas, when one of Shumaker’s Ohio clients opened a plant in North Carolina, the firm decided to open a Charlotte office in 1988.

A decade later, the firm added a Columbus office to its Ohio service area, and the following decade a Sarasota office to its Florida service area.

Today the firm has over 245 attorneys, 60 paralegals and 500 employees firm-wide. The Charlotte office, just recently moved from First Citizens Bank Tower to Bank of America Plaza, boasts 35 attorneys and 75 total employees, with deep resources and support from its other offices.

“Our firm’s culture is still deeply grounded in its Midwestern, straight-forward, no-nonsense work ethic,” confirms Shumaker Charlotte partner Warren P. Kean. “We credit much of our growth and success on the foundation of high quality service and community involvement that was begun in Ohio, and seek to build on that in our legal practice here in the Carolinas as well as with our community involvement in Charlotte.”

Manufacturing, Construction and Mid-Market

16.03-04_SLK_David Conaway_S
David Conaway

“We serve many industries and practice areas,” comments Shumaker Charlotte partner David H. Conaway, “but what we think makes us stand out is our presence in the manufacturing sector, our presence in the construction sector, and our presence in the mid-market sector (companies with revenue ranging from $10 million to more than $500 million). Manufacturing, construction, and mid-market companies are really the heart and soul of Charlotte.”

Conaway specializes his practice in the manufacturing sector, regarding bankruptcy and insolvency, commercial litigation and contracts.

“We started out representing textile companies, and that’s how we began in the manufacturing sector,” Conaway explains. “We did a lot of insolvency work, representing creditors in bankruptcy cases. When I first came to Charlotte, in Chapter 11 proceedings you either represented the banks, or you represented the debtors, or you represented the vendors in the supply chain that provide goods and services to a company. We decided to focus on the vendor community.

“As the textile industry has declined, we have branched out to other industries, and that’s very complementary to what we do in Ohio,” Conaway continues. “Our Ohio office started out representing suppliers to the auto industry, so it was a natural fit. So now we represent manufacturing companies on anything having to do with their customers or anything having to do with their supply chain. It’s very often a crisis situation or a distress situation. It’s problem solving.”

As a rapidly growing Sun Belt city, Charlotte has long been a city driven by development. As a result, Shumaker’s construction law practice has been a key to their success here. They can represent any participant in the construction industry—from the time the land is purchased through negotiation of the contracts, through the construction process, project close out, final payment, and dispute resolution.

Charlotte native Steele B. “Al” Windle III is a partner in the firm’s Charlotte construction practice and is a graduate of Wake Forest University School of Law. After working for four years at a firm in Atlanta focusing on construction law, he returned home to Charlotte where he practiced solely in construction law for 15 years at another firm before joining Shumaker.

“We have a very strong construction law practice representing owners, architects, engineers, contractors, subcontractors, suppliers, and all aspects of the construction arena,” touts

Steele B. “Al” Windle III
Steele B. “Al” Windle III


“We represent many different size companies from very large to small on all types of commercial construction projects. However, our target market is the mid-level construction companies that are privately-owned and have anywhere from $10 million to $250 million in annual revenue. These companies are typically headquartered in or near Charlotte, but they do work wherever their clients take them.

If one of our clients has a project somewhere else in the country, we will go there to handle their legal needs. For example, we have handled cases for our clients in Bangor, Maine, Dugway, Utah, Gulfport, Mississippi, and Key West, Florida. We handle everything from negotiation of the contracts to project close-out and resolution of claims and disputes by negotiation, arbitration or litigation.”

Kean is part of the Charlotte business practice that focuses on middle-market companies and their owners. He came to Shumaker two years ago after spending his prior career with very large international law firms in New York and Charlotte because his passion is representing growing, mid-size companies for which Shumaker is a perfect fit.

“If the company has in-house counsel, we help service their needs,” he explains, “but more often, we’re dealing with substantial companies who do not have a legal department of their own. These companies rely on us to respond to the wide range of legal issues they encounter in operating and growing or selling their businesses.

“We are very much involved in financing, mergers and acquisitions, and other commercial transactions. We also bring to bear the expertise of our other lawyers as needed, including excellent litigators, to help prevent or resolve claims and disputes involving our clients.

“Then, there are the specialty legal services areas that businesses need,” continues Kean. “Employment law, employee benefits, intellectual property, data protection, franchise law, real estate and environmental law, and tax and exit planning, to name a few, are critical needs that we regularly service. This might be in conjunction with a transaction, in connection with some litigation matter, or arise on their own. For example, our employee benefits practice has been very busy with the Affordable Care Act in getting our clients up to speed as that evolves and impacts companies.”

Globalization and Other Trends

Increasing globalization continues to impact businesses of all sizes, and Shumaker is no exception. In addition to domestic clients who have cross-border business activities, an increasing amount of their legal work, particularly in the manufacturing practice, comes from foreign companies that have their U.S. headquarters or other significant operations in the U.S. and Charlotte area.

“It seems like almost every client touches something outside of the country, even if it’s just a supplier,” says Conaway. “We also have clients that are exporting, so globalization is huge. If, as a lawyer, you don’t have some kind of global capability, I think there are a lot of missed opportunities to add value for our clients.”

In response to these globalization trends, in lieu of establishing a brick and mortar presence abroad, the firm is developing Shumaker Global, a series of alliances that will allow it to serve its clients’ cross-border needs. “It’s evolving, but we made a conscious decision that we needed to have global capability,” states Conaway.

Many domestic law firms establish alliances with an international law group, but Shumaker decided to take a different path. It elected to slowly develop its own alliances based on the relationships that its lawyers have developed over the years with law firms around the world.

“A lot of our lawyers have had opportunities over the years to interact and do cross-border work,” explains Conaway. “They now know the lawyers abroad, so we organize all of those relationships. We have excellent overseas relationships including in Canada, Mexico, Central America, Brazil, and throughout Europe.”

“These are truly relationships that we have developed,” he continues. “We invest in them. We get to know them. We work with them. We add value for each other’s clients.”

In addition to globalization, Shumaker’s clients are feeling greater and greater pressure from investors to maximize profits. That impacts every aspect of their business.

It seems like Wall Street and private equity funds are having a much greater say in how companies are run,” admits Conaway. “We see a lot of companies that sell business units just because some shareholder in New York has told them to. As a lawyer, you have to understand that. You have to understand what is driving them and what pressures they’re under.”

Somewhat surprisingly, in the wake of the 2008 financial crisis, Chapter 11 bankruptcy cases have declined significantly nationally, principally, Conaway says, because lenders stopped providing debtor-in-possession financing. With near zero interest rates, companies could perform poorly and still get by, and on top of that, lenders kicked the can down the road because they didn’t want to write off bad loans against their capital reserves that were being closely watched by the Fed. Instead of bankruptcies, there have been a lot of work outs. Conaway thinks that is going to change over the next couple of years.

“From 2008 through 2011, the loans kind of stopped,” he observes. “Then they started making more loans, so now is about the time the loan cycle comes back and covenants are being breached. I’ve seen it before. It’s just a matter of when it hits.”

Finding the Sweetspot: Relationships

Shumaker, Loop & Kendrick has a very decentralized management and operating structure. The firm is managed by an executive committee made up of managing partners from each office. Most of the administrative and accounting staff is located in Toledo, but some key marketing and IT staff are located in other offices.

Shumaker is really organized by practice area, and with offices in three states, the firm can call on specific legal expertise, regardless of where the attorney is located.

“As an example, we have an excellent lawyer in Toledo who is a whiz on insurance for the construction industry,” explains Windle. “Whenever we have an issue involving insurance coverage, we get him involved and he comes down here. He’s even tried cases in the federal court here in Charlotte.”

“We’re at a size where we generally know everyone,” adds Kean. “We know who to call, and it doesn’t make any difference whether that person is in the office next to mine or in Columbus or in Tampa. I know where the expertise is.”

Shumaker fills an important niche between the large mega firms that may have 1,000 or more attorneys and the smaller, more entrepreneurial firms with 10 or fewer attorneys.

“We’ve seen a lot of consolidation and a number of larger firms have grown substantially. As a result, their focus is now on a different client base,” remarks Kean. “On the other hand, the smaller firms simply don’t have the capability to provide that full range of services that our core clientele need and demand.

“The middle has more or less been hollowed out, and that’s where Shumaker’s focus is. With 245 lawyers, we’re able to provide full service to businesses and business owners, and that remains our core focus.”

“The basis of our practice is relationships,” concludes Windle. “I’ve been practicing for over 30 years, and we still represent some of the same people from when I first started. We try to not only be a lawyer and a businessman—but maybe a little bit more than that, if only just a friend. It’s a relationship.”

Shumaker, Loop & Kendrick, LLP

d/b/a Shumaker

Charlotte Office

101 South Tryon St., Ste. 2200

Charlotte, N.C. 28280

Phone: 704-375-0057

Principals: Scott M. Stevenson, Charlotte Managing Partner; David H. Conaway, Warren P. Kean, Steele B. “Al” Windle III, [Representative] Partners

In Business: Since 1925

Offices Established: Toledo, Ohio (1925); Tampa, Fla. (1985); Charlotte, N.C. (1988); Columbus, Ohio (1998); Sarasota, Fla. (2009)

Personnel: 35 attorneys and 75 total employees in Charlotte; over 245 attorneys, 60 paralegals, and 500 employees firm-wide

Recognition: Am Law 200 and National Law Journal Top 250 law firm; 114 AV Peer Review Rated by Martindale-Hubbell; 28 Board Certified Attorneys, 16 Certified Mediators and Arbitrators, 82 Best Lawyers in America; 53 Super Lawyers and Rising Stars

Business: A full-service business law firm with specific expertise in the manufacturing, construction and mid-market sectors.




Key Employee Incentives—Perhaps a Phantom Approach?

Many private business owners find it desirable to issue or transfer some type of equity to a top manager or other valuable employee in order to retain such individual’s services. Not surprisingly, these types of non-cash equity transfers tend to be more frequent in expanding economic climates as key employees have more options available to them in an expanding job market—a phenomenon the Economist has described as the “pay and perks arms race.”

Advisors often suggest a variety of equity-linked alternatives such as restricted shares, non-qualified stock options, incentive stock options, LLC profits interests, and/or options to purchase LLC profits interests. These alternatives should be considered in conjunction with an analysis of the related form of business entity tax treatment, securities law compliance, vesting schedules, and administrative costs (for example, stock options may require annual independent valuations in order to comply with Section 409A under the IRC).

It is important, however, to first determine the key employee’s concerns and/or goals with respect to the company and the employee’s assessment of a fair return for the employee’s services. Many key employee situations may be resolved with something other than equity ownership in the company and still be a mutually agreeable solution.26727651_ml

Additionally, under North Carolina law, employees that hold an ownership interest in the employer may assert, in a termination of employment situation, an additional layer of protection under the Meiselman line of cases in North Carolina. Relief under this approach is normally based on a claim by the minority shareholder that his or her “reasonable expectations”—here, continued employment—have been frustrated by the majority owner. Accordingly, such interest may bring about undesirable employment issues.

A majority owner faced with the termination of an underperforming employee owner will likely face greater obstacles to proceeding with such termination due to the employee’s shareholder status unless very clear and enforceable documents are put in place covering the employee’s termination, including the repurchase of the former employee’s equity interest for an agreed upon consideration following termination.

Let’s return to the key employee/owner dialogue scenario. A key employee informs the owner that the relative contributions to the company between the owner and employee have, over time, become inconsistent with the returns provided to each of them. Perhaps the employee believes that if the current owner holds 100 percent of the company, surely out of general fairness such owner could part with an “insignificant portion” (say, 10 percent) of the company and simply “gift” such shares to the deserving employee.

In such cases, the owner should point out to the employee the tax issues generated with an equity transfer. Equity simply “given” to the employee by the employer results in the IRS treating such transfer as part of a compensatory arrangement with the employee needing to come up with funds to pay the tax bill relating to such value unless the employer is willing to “gross up” the employee’s cash compensation to assist the employee with his or her newly acquired tax obligation. Another distinct possibility is that the owner has personally guaranteed existing bank debt needed for operational cash flow and expects all owners to do the same. The employee may become less eager to jump into the ownership ranks if he or she would also be required to take on a portion of such contingent liabilities.

After a meaningful discussion with the key manager, the business owner may find out, for example, that the manager is satisfied overall with current compensation and annual bonus arrangements but is greatly concerned with what would happen upon a company sale or other change of control. In such case, the business owner might structure a simple phantom stock or stock appreciation rights (SARs) plan. These plans are quite simple to implement and involve granting an employee a set number of phantom stock units or SARs.

No tax is paid on the grant date; taxation occurs when the amounts vest. So at the time of a change of control, the employee would receive a payment taxed at ordinary income tax rates and the company would get a deduction. Such plans normally remain in place for the employee only so long as he or she continues to provide services to the company and can be structured to generate a cash payment solely upon the sale/change of control event, thus providing the key manager incentive to stay on with greater certainty as to the economic effects of any such sale/change of control. The key employee would not obtain capital gain treatment but may nevertheless regard the phantom units or SARs as a valuable “success” type of reward for staying with the company while allowing the owner to avoid shared ownership issues.

Bottom line—business owners willing to engage in active listening with key employees may just learn they have more options (pun intended) than actually issuing ownership rights.


Content contributed Shumaker, Loop & Kendrick, LLP, a full service law firm founded in 1925 with more than 240 attorneys practicing in Charlotte, North Carolina; Columbus, Ohio; Sarasota, Florida; Tampa, Florida; and Toledo, Ohio. Content written by Philip S. Chubb, Partner, Corporate Practice Co-administrator, whose principal areas of practice include corporate transactional and M&A projects. For more information, contact him at 704-945-2165 or pchubb@slk-law.com or visit www.slk-law.com.


With New Mobile App

We live in a world where total access to information is at our fingertips via our smartphones. Smartphone sales have gone from 62.6 million units in 2010 to a projected 236.8 million in 2019 (Source: Statista 2016). As a result, social media communication has been transformed by our desire to share our experiences in real time, in the moment.

Most think of Facebook, Twitter, Instagram and Pinterest when social media mobile use is discussed and statistics support this. LinkedIn is different than other social media. It has typically been accessed via a desktop or laptop computer. Where the other social media options are hybrid in nature, appealing to consumers and businesses, LinkedIn is dedicated to business-to-business.

Fact: Currently more than 50 percent of LinkedIn users access the platform with their mobile app. The result is a brand new, totally redesigned master LinkedIn app. We love the new mobile app because it is similar to the desktop version, which has superior navigation and enhanced capabilities.

The new app is organized into five distinct sections: Home, Me, Messaging, My Network and Search.


 From Home, you can now see a stream of news sent your way. This section includes content that has been shared or published by your network. You are given the opportunity to respond to the postings by liking, commenting and sharing what you see. By simply scrolling through the posts you are able to see information based on your interests, connections and groups.


Me includes two areas. First you’ll see the number of people who have viewed your profile as well as who’s viewed the content you have shared. This is similar to the notifications tab of the desktop version of LinkedIn. When you share content, you’ll see who has liked, commented or shared it along with an update of who’s following you.

This is a great method to stay on top of individuals who are interested in your posted content for the purpose of furthering your business relationship. You can follow up with those who have responded to your post and further the discussion about the content.

The second area of Me now allows for editing your profile instead of having to wait until you get back to your desktop. It exhibits how your profile is seen by mobile users and provides insight into how to structure it based on how it is rendered within the mobile environment.


Don’t be fooled into thinking this section is just glorified texting between you and your connections. This has been transformed into your total communication center on LinkedIn. It mirrors the new message center on the desktop version and is where all past and present communication is housed.

My Network

 Within My Network are the updates to your connections profiles that reflect their position or job change, work anniversary, and birthdays. This is similar to what is found on your desktop Home page. You may congratulate your connections with a personal note (and if local, suggest a celebratory lunch or coffee break). It’s a great way to stay on top of the changes being made by your network.

In addition, LinkedIn will suggest People You May Know based on your current connections and profile keywords. A word of warning—by clicking on the icon to the right that allows you to request a connection, you are not permitted to customize your message. We always recommend customizing connection request messages.


You’re now able to “search for people, jobs and more…” as written on the tool bar. For those of you who have used the search tool bar at the top of your desktop version, this will be very familiar. Prior to going into a business meeting with someone, check them out on LinkedIn to find out more about them. This makes it simple to access their profile.

You can do the same type of research when meeting with a company. Searching for the company name results in seeing their company page, including the latest news and possible jobs available.

Finally, when connecting with a person using the new app, you are now able to customize your connection request by clicking on the three horizontal dots at the top right of their mobile profile. There you will be able to personalize your invite, send them a private message and share the person’s profile with another individual.

Why do we love the new LinkedIn mobile app? Finally, there is integration between the desktop and mobile versions. Both now allow for simpler communication and research. LinkedIn recognizes the importance of mobile for communication purposes and now it is possible.

Content contributed by Ira and Linda Bass of Connect To Success, specializing in LinkedIn individual and group training for corporations, associations and networking groups along with communication coaching. For more information, please contact Ira Bass at IraBass@ConnectToSuccess.biz or 704-989-3790. Learn more at www.ConnectToSuccess.biz.



Narrow Focus Fills Pipeline with Better Leads

D id you ever think you might be trying to sell to too many people? I know it sounds odd—as a sales pro, you’re programmed to sell your product to as many people as possible. It’s a fundamental tenet of business growth.

But the fact is, when you try to sell to too many people, you end up with fewer sales and fewer long-term clients.

It’s called the Target Market Paradox—and it’s one of the most common (and most crippling) mistakes in lead generation.

More Prospects Don’t Always Equal More Sales

As a business database and prospecting tools provider, we know a thing or two about the importance of a defined target market.

Because a database can contain tens of thousands of listings, users are immediately challenged by which prospects to target.

Rather than letting loose to sell to every prospect in the database, it is usually best to work with a narrowly defined target market of only the best prospects.

You might ask: Why encourage such a limited approach? The answer is that, far from limiting the client’s business development efforts, a defined target market creates a direct path to more appointments and sales.

To understand why, consider the consequences of casting too wide a net:

  • Sales and marketing strategies that lack focus.
  • Too many “low-value” prospects (prospects unlikely to agree to an appointment, make a purchase, or renew) clogging up the funnel.
  • Limited referral opportunities due to lack of clarity about who you’re selling to.

Here are a few steps to help you create an ideal target market allowing you to pursue leads that are likely to reward you with years of sales.

Look at Your Existing Client Base

To shape your target market, start by looking at the clients you already have.

Are all of your client relationships equally rewarding? What are the demographics and psychographics of your most profitable clients?

Some customers, often the large and unprofitable ones, may be more trouble than they are worth. Others with a respected brand may give you instant credibility.

Use your existing client list as a blueprint—it’s the first step in the process of separating high-value opportunities from low-value time-wasters.

Define Your Ideal Client

Your current client list provides a road map, but you need to dig a little deeper to find your ideal target market.

After all, you’re not looking to sell to your current clients—you already did that. You’re looking for “hidden” prospects, many of whom may not know about you or what you offer.

Once you’ve analyzed your current client demographics, ask yourself the following questions, then use the answers to define your highest-value prospects.

  • What common challenges do my clients and prospects face?
  • What objectives do they share?
  • What other industries or companies might have these same challenges/objectives?
  • What’s missing? What industries/companies do I want to sell to that aren’t represented on my client list?
  • Why do I want to sell to these companies? Do they really represent my ideal prospect?

The Problem with Everyone

Even if you think you sell to “everyone,” defining your ideal target market is still important.

Imagine you are asked for a referral and told, “I can work with everyone who needs my product.” Who comes to mind? Chances are you’d struggle to come up with anything promising.

What if instead you were asked for “serial entrepreneurs in the technology arena located in your city.” Your mental picture becomes clearer.

And that’s the fundamental point—your target market isn’t just a list of companies. It’s a living template that you use to generate leads and qualify prospects in real time, and that you continuously refine based on what’s working and what isn’t.

It is important to make sure that your business database and prospecting tools provider assist you in defining your target market appropriately and offer the resources that will enable you to identify your high-value local prospects.

Follow these pointers and you’ll see why a narrowly focused target market increases your potential for better leads, more appointments, and rewarding client relationships.

Content contributed by Business Wise, Inc., helping businesses navigate every phase of the new business development process by combining trustworthy business and local contact databases with powerful prospecting tools for the Atlanta, Charlotte and Dallas-Fort Worth areas. To get a snapshot of how many high-value local prospects you may have, visit www.businesswise.com/resources and start the “Target Market Planner.” For more information, contact Vicky Ray Pace, Area Manager—Charlotte Office, at vicky@businesswise.com or 704-554-4112 or visit www.BusinessWise.com.


The consumer’s path through the digital landscape of a growing internet is becoming clearer, but is still a relatively new journey. One thing is no longer deniable: As the internet has invaded our pockets and engaged our fingertips, suddenly information is available anywhere, anytime.

Furthermore, the consumer is using mobile devices and internet capabilities throughout the buying experience, reading reviews and seeking advice from friends on social networks.

Here is an illustration. When MapQuest and other mapping websites first became popular, consumers would research a business they wanted to visit, map the address, print out the route instructions and venture out into the world, hoping that the information was correct. Just a few years later the entire Google knowledge graph and map travels with us in the form of GPS apps and mobile search, seamlessly.

And with that initial click comes a wealth of even more information. For example, the business’s closest competitors, the business’s hours or whether an item is in stock, or comparative prices of services/merchandise both online and in local stores. Local search has gone from the desktop to mobile faster than anything else.

The takeaway? Getting found online used to be the key to online success; now it is only part of the process.

There is a lot of noise on the internet right now. It seems everyone with a blog is a digital marketing expert, filling Google search and Twitter feeds with “5 Best Ways to Do This” and “10 Ways Not to Do That.” It is easily overwhelming; very few are actual experts. You might find yourself feeling that there is almost no time in between reading advice articles to implement any information consumed.

There are definitely qualified digital marketing experts that you can read, follow and trust. You will know an expert by the amount of data they have collected and show off in their writings to back up their theories and ideas. Consume as much information as you want from as many sources as possible, but always remember it will apply to your business differently than it did to theirs. Your business is unique and should be treated as such.

Here is the single piece of expert advice to begin with: Start simple.

Forget about technical. Forget about digital. Forget about mobile, desktop and Google.

Think about your customer. Think about your goals.

Example: Is being No. 1 on Google your goal? Or is it getting more customers and growing your business? Probably the latter. The former is just a step in the process.

When you get to the root of your digital marketing goals, the strategy shifts towards a personalized consumer experience from a robotic solution designed and written to please search algorithms.


From when you build your website for your user to when you write your blog posts for your readers, the paradigm shifts. Suddenly your website changes from an online brochure to a revenue-generating online asset for your business.

So let’s break that down into several actionable steps so that implementing this advice is as easy as reading it.

  1. Figure out where you are starting from. Search online for your business name, click through your website on desktop and mobile, see what people are saying about your business online. Do you like what you see? Do you get a sense of a consistent brand message across all of your online assets? Was it easy to use your website on your phone and tablet?
  1. Think about your buyer profile and typical website user. Where are they when using your website? At home? At work? In the car? In your store? Brainstorm ways you can make this experience better for them (faster, easier, more value).
  1. Look at the way your website visually displays “Contact Us” in your main navigation. Does it look the same as the rest of the menu? Or does it stand out? Consider making it stand out with a different color or look. This simple edit has the potential to increase leads and conversions on its own.
  1. Pop open your social media pages (hopefully your business has them.) Keep Facebook, Twitter, LinkedIn and several others open in a few tabs and just click between them. Are you seeing a unified brand? A consistent message? It would not take a graphic designer very long to create a set of profile images to give your business a consistent professional visual appeal.
  1. Take queues from the world’s biggest brands. They have whole teams of the best marketers in the world working for them. Watch how they present brands in commercials, magazines, online. Listen to the messaging. You will notice them creating more value online than just having a website–with off-site blogs, online tools, high value social media feeds. With consumers as smart as they are, and with an overload of online resources to choose from, how does your business stand out? Think about creating more value with your online assets.

Also note that the longer you can get people to stay on your website, the more pages you can get them to click through, the better. Google measures both metrics as the amount consumers trust the information they are finding on your site. If they leave right away (“bounce”) your page may be viewed as an inferior resource to one that encourages readers to click on links, watch videos, read the next article in a series, fill out a form, etc.

 Content contributed by Possible Web, Inc., a digital consulting group founded in 2012 offering productized digital consulting services to businesses of all sizes. Content written by Patrick Scully, local Charlotte SEO expert, co-founder and creator of the firm’s innovative inbound marketing services. For consulting contact him directly at 704-594-5796 ext. 702 or by email patrick@possibleweb.com or for more information visit possibleweb.com.



Tax Law Allows Avoidance of Tax on the Sale of a Business

A t the end of last year, the president signed into law the ability of some investors to not pay tax on the sale of “qualified small business stock” (QSBS) acquired after September 27, 2010, and held for more than 5 years. Under the new law (which permanently extends this special treatment that had been allowed on a temporary, annual basis since 2010), the gain from such sales (subject to numerous technical qualifications and limitations) is excluded from taxable income and, therefore, is not subject to federal and, for most states, state income taxes, the alternative minimum tax, or the 3.8% tax (sometimes referred to as the Obamacare tax) on capital gains and other net investment income.

The amount of gain that is excluded from tax is capped at the greater of $10 million or 10 times one’s investment. For example, a person who invests $100,000 in a qualified small business after September 27, 2010, holds that investment for over five years, and meets the other eligibility requirements will not be subject to tax on gain of up to $10 million, and a person who invests $1.5 million will not be subject to tax on gain of up to $15 million.

Not all investors are entitled to this tax break. Only individuals (directly or indirectly through flow-through entities, such as limited liability companies (LLCs) classified as partnerships for federal tax purposes), estates and trusts are eligible (i.e., not C corporations), and those eligible investors generally must purchase the QSBS directly from the issuing corporation and not from any other person (except transfers upon death, by gift or distributions from LLCs and other entities classified as partnerships for federal tax purposes).

Only C corporations (including LLCs that elect to be classified as C corporations for federal tax purposes) may issue QSBS. Investments in partnerships, LLCs and other entities classified as partnerships, and S corporations do not qualify, except to the extent those flow-through entities own QSBS in other companies. Moreover, only businesses that are deemed to be both “active” and, at the time of the issuance of the stock, “small” are eligible to issue QSBS.

The list of businesses that are not deemed to be “active” and, therefore, do not qualify to issue QSBS include professional service, arts and entertainment businesses; insurance, financing, leasing, banking and investment companies; hospitality (hotels, restaurants, etc.) businesses; farms; and businesses entitled to depletion deductions (such as mining, oil and gas, and other mineral extraction businesses). Also excluded are those active businesses that immediately after the investment have a gross asset value of more than $50 million and, therefore, are not considered “small” for this purpose.

LLCs and other entities classified as partnerships for federal tax purposes are not completely left out from securing this tax break for their owners. Those entities may convert into C corporations (usually a fairly easy process) to have their future appreciation escape tax (i.e., only the owners’ built-in gain at the time of conversion will be subject to tax when they later sell their QSBS), up to the above-described caps.

Hence, owners of existing companies that are LLCs or other entities classified as partnerships for federal tax purposes may be better suited to realize this tax break than existing C corporations that issued all or substantially all of their stock before September 27, 2010. However, those investors will want to weigh the benefits of maintaining flow-through status (e.g., one level of tax on business earnings that are distributed to its owners, the ability to sell assets or the company itself at lower capital gains rates while allowing the purchaser of those assets or the company to receive a tax basis in those assets equal to the amount the purchaser directly or indirectly pays for them, and the ability to use company losses to reduce, subject to several limitations, the owners’ taxable income from other sources) against the benefits of not having the future appreciation in their interest in the company subject to tax.

The ability to sell an asset for cash and not have to pay tax on the gain realized on the sale is extraordinary. This tax break was deliberately enacted by Congress to encourage investment in active, small businesses. Every business owner who either has an investment in a small business (including a business that may otherwise not qualify but has a segment or division that may qualify) or is considering starting or investing in a small business should consider whether that business qualifies (or through restructuring or reorganization could qualify) for this tax break and, if it does, assess whether the ability to avoid tax on the sale of their investment outweighs the numerous, complex and, in some cases, unsettled compliance requirements and limitations and competing considerations of flow-through taxation.

Content contributed Shumaker, Loop & Kendrick, LLP, a full service law firm founded in 1925 with more than 240 attorneys practicing in Charlotte, North Carolina; Columbus, Ohio; Sarasota, Florida; Tampa, Florida; and Toledo, Ohio. Content written by Warren P. Kean, Partner, whose practice focuses on matters relating to limited liability companies, partnerships, and other unincorporated entities and the taxation of those entities. For more information, contact him at 704-945-2906 or wkean@slk-law.com or visit www.slk-law.com

Publisher's Posts


Making Us Reevaluate Human Endeavor

Some presidential candidates have suggested restraining international trade as a means to restoring and retaining jobs in the U.S.; however, simple observation of the ever-expanding and increasingly interactive flows of goods, services, finance, people and digital communications confirms our global economy does not easily afford artificial barriers.

Equalizing the field of international trade is laudable, however, we need to also—or moreso—recognize that the nature of Industry 4.0 itself is catapulting advanced manufacturing in the direction of substantially fewer workers and more automation.16.03-04-05_PP_John Galles_S

Industry 4.0 facilitates the vision and execution of a Smart Factory. Within the modular structured Smart Factory, cyber-physical systems monitor physical processes, create a virtual copy of the physical world and make decentralized decisions.

Over the Internet of Things, cyber-physical systems communicate and cooperate with each other and with humans in real time, and via the Internet of Services, both internal and cross-organizational services are offered and utilized by participants of the value chain.

However, workers’ pay, training, benefits and taxes are more expensive relative to robotic counterparts. As a result, the vision of Industry 4.0 suggests that the adoption of big data, autonomous robots, simulations, additive manufacturing, system integration and augmented reality will further reduce the number of jobs.

While we all would like to think that we are not replaceable—from publishers to financial advisors, to bus drivers, firefighters, doctors and surgeons—new technology and artificial intelligence are replacing more tasks and supplanting more jobs.

Even the big consulting groups like McKinsey and Company and the Boston Consulting Group have suggested that it is likely that 45 percent of current jobs will be provided by robots. As a result, increasing unemployment may reach 50 percent in 30 years.

There will be jobs for those that build and service these new machines; however, programs are also being written so that these machines will repair themselves.

Combining the impact of all these new technologies, it is probable to conclude that we will be facing potentially devastating economic upheaval. With the future of human labor in doubt, we will need to reconsider the next generation of “jobs” that will enable our livelihood.

Over the past 50 years, the impact of technological change has moved people from the farms to the factories and then to a nation substantially built on services. As technology continues to replace and supplant human labor and thought, we might envision further evolution to a reduced work week allowing time for more creative work that will end up as ever-newer innovations and entrepreneurial opportunities supported by technology.

More time invites more creativity, especially with the access and application of technology to support such thought work. Art, culture, travel, education and adventure will be pursued in a multitude of ways including virtual reality and high-speed travel.

Our old manufacturing revolution and its applications will pale in comparison to future production. We won’t need to produce 5,000 widgets in a factory to reduce the price of an individual widget; we can simply scan one and 3D-manufacture it from anywhere. We may be able to diagnose our own ailments and identify treatments that have been designed for our individual DNA. We may even learn to eat certain foods that will cure our ailments and prevent future health problems.

We need to embrace a broader dialogue on these challenges to rethink and reassess how these changes will affect our values and purpose. Our “world” is being radically disrupted, but maybe that disruption will give way to even more innovation and creativity than we know today.

We need to look forward, not be lulled into the thinking of the past century and applying arcane solutions. We need to reevaluate the human endeavor and what makes us fundamentally individually valuable.



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