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Keep or sell company stock ownership?
Old 09-06-2007, 02:38 AM   #1
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Keep or sell company stock ownership?

I have been a 12% owner in the civil engineering firm where I work since 1992. At that time, the stock ownership cost me 75k. We had 4 owners from 1992 -2001, and 10 owners since. I'm going into semi-retirement now at 52 working 4 days a week, gradually reducing to 0 in four years. The 2 senior partners are selling their remaining stock and retiring by Jan 1, 2009.

My dilemma is to determine the best time to sell my stock. My stock value is roughly 440k now. My share of profits has been in the range of 100k - 120k for the last 6 years. This year is very lean and I expect my share to be around 40k. Next year could be worse due to housing crash. My net worth is approx 3.3m that includes 1.2m of debt free real estate. FIRECALC works at 100% at 2m in investments 4 years out.

My gut feeling tells me to sell at the same time as the senior partners. After they leave on 2009, I'll be the partner with the largest net worth, and I feel like this stock ownership and associated guarantees are risky for someone so close to retirement. The senior partners are telling me to hold on to the stock. Although my ROI through my stock ownership exceeds that of alternative investments, should I sell my stock? and when?
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Old 09-06-2007, 10:48 AM   #2
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[quote=Ronstar;553601] I'll be the partner with the largest net worth, and I feel like this stock ownership and associated guarantees are risky for someone so close to retirement. quote]

I think this statement answers your own question. If my math is correct you have about 13% of your NW in your companies stock - a pretty big exposure.

DD
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Old 09-06-2007, 05:24 PM   #3
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You are probably going to do better tax wise by selling before the likely dem victory in 2008 followed by their eliminating the 15% max capital gains tax. After that's gone, it will be ordinary income.

Most "advisors" recommend no more than 4 to 10% of your net worth in any one company. That doesn't always work for small business owners or professional partnerships. If you are planning to leave and have no restrictions, it is probably good to reduce your exposure ASAP. I wouldn't wait until the senior partners sell if you have that option. If possible, you also may not want to sell all at once.

Here's the final question. Would you buy the shares you own now if you didn't already own them? If not, you know what to do.

You didn't mention anything about the pricing structure for the stock. I'm assuming it's not publically traded so there has to be a certain amount of fluff in the pricing and restrictions on who can buy. That may be the basis for the senior partners recommending you keep your stock. Too much for sale at any one time might impact their ability to bail out.
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Old 09-06-2007, 08:29 PM   #4
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DblDoc - Thanks for affirming that my thought process is on track. I asked my accountant and he said sell, but he added that he didnt think the pct of my NW in co stock was excessive.
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Old 09-06-2007, 08:54 PM   #5
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You are probably going to do better tax wise by selling before the likely dem victory in 2008 followed by their eliminating the 15% max capital gains tax. After that's gone, it will be ordinary income.
I have considered this as well - good point.

"Would I buy shares if I didnt already own them?" - not now because I'm too close to retirement. I could have increased my salary and title - but that would have required me to buy more stock at a time when I felt I should start selling.

An interesting wrinkle about me selling before the senior partners. They agreed some time time ago to sell at about a 10% reduction of current price. Depending on demand for the stock, a partner interested in buying may be limited to his pro-rata share of the stock available. If I sell mine first, the buyers of my stock would get a larger pro-rata share of the reduced price sale from the senior partners at a later date, since they would increase their pct of the company prior to the senior partner sale. Not a big deal, but certainly an advantage over waiting until after they sell. At that time there will be less incentive for others to buy my stock.
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Old 09-06-2007, 10:44 PM   #6
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With the returns you spoke of selling would be inadviseable. With and ROI of 9% in a bad year and 20-25% in a good year and so many other investments I would hold on to the investment unless you were convinced the company was surely headed south. I would listen to your partners and hold.
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Old 09-07-2007, 04:16 AM   #7
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Based on what you said. I would probably sell. Of course, if you think the value of your ownership is temporarily depressed (and will increase over the next couple of years), I might hold off for a while.

To me it depends on how much confidence you have in the business. You do have inside knowledge!
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Old 09-08-2007, 05:53 AM   #8
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DblDoc - Thanks for affirming that my thought process is on track. I asked my accountant and he said sell, but he added that he didnt think the pct of my NW in co stock was excessive.
Who are you going to sell to Doesn't seem like there are that many shares not in to execs hands....

And if there is going to be a lot of shares available in 2009, seems like the price will drop...

I would sell now and get out before everybody else is there hitting the door..

BTW, who will be running the place if you are the largest shareholder? Also seems like it will be either a rudderless ship or a sinking ship...
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Old 09-08-2007, 06:13 AM   #9
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There are 10 partners now, and 5 want to buy more stock. The senior partners put 2 of the guys in charge that would best be suited to run the company for the next 20 years. I wasnt interested in a long term commitment that involved purchasing their stock, so I declined when offered a higher position.

I wont be the largest shareholder when the 2 senior partners retire, but the one with the largest net worth. I feel I may have too much exposure for a minority share, and I have less control now than I used to.
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Old 09-08-2007, 11:21 AM   #10
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You mentioned guarantees. I assume that shareholders are guarantying business debt? If so, I would sell sooner rather than later. Why have that risk out there. Plus, there seems that there may be a greater likelihood of getting a good price now than after the two senior partners sell out. A lot can happen in transitions with a closely held business.
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Old 09-08-2007, 09:38 PM   #11
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You mentioned guarantees. I assume that shareholders are guarantying business debt? If so, I would sell sooner rather than later. Why have that risk out there. Plus, there seems that there may be a greater likelihood of getting a good price now than after the two senior partners sell out. A lot can happen in transitions with a closely held business.
Each partner guarantees a pct of the line of credit to an amount equal to his/her pct of stock ownership. The new partners are saddled with debt from their recent stock purchases. So they may vote to have the company purchase the stock of the senior partners, since they may not be able to personally borrow all the money needed. I dont want any part of that. That will just increase the debt of the company and my part of the debt along with it.

Anyway, I think all of the replies have given me the direction I needed.
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Old 09-10-2007, 11:20 AM   #12
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You could look into hedging your bet. Either make sure you hold very little of the same sector in your outside investments, or place some type of a hedge against this sector. For instance, you could buy put options against homebuilders ETF or something similar as an "insurance".

If you do not have a good gauge of future prospects of this company in particular though, I'd just sell and move on with enjoying your retirement.
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