Engineering Inc. - May/June 2006 - 14

B roadening ownership distribution provides increased liquidity for
everyone, and A s an engineering firm grows and gains momentum, it it's an
attractive expands its employee base. The new employees often desire or
model to younger expect an ownership share of the business. This can be a
dif- workers, who ficult decision for the founders who took on the
original risks, says Patty McManus, president of Olsson Associates in
Lincoln, are demanding Neb. To attract the necessary talent to continue
growing, a mid- ownership rewards faster than the preceding size firm must
consider expanding ownership beyond the origi- generation did and who want
to diversify nal founders, although some firms retain ownership and find
other ways to reward employees. their investment portfolios. There is a
trend toward consolidation in the industry, with a lot of larger firms
buying smaller ones to further increase their technical competence and
geographical diversity, says Paul Kevin mcmahOn Lurie, equity partner at
Schiff Hardin, LLP in Chicago. The edwards and Kelcey larger a firm gets,
the more diverse and spread out the owner- ship can become. But some
larger firms are still controlled by a should have a stake in the
business, and it's been successful handful of founders, successors or a
cadre of original employees. because when they do, they benefit beyond
salaries. Denys Oberman, president of Oberman Associates, Inc., a There
also is a lot of interest about forming subchapter S California-based
strategic and financial advisory firm, says that corporations as a form of
ownership structure because the tax for firms of all sizes, it is
increasingly important that leadership burden on the company's earnings
gets passed to the sharehold- be able to effectively manage the various
demands associated ers, according to Flicker. with the firm's business,
strategic and operational investments, However, the rules and regulations
defining the use of the staff incentives and ownership transitions.
subchapter S corporation structure are more complicated than She adds: It
is critical that the roles of management, direc- those of a C corporation
and must be fully understood to tors and shareholders in the
decision-making process be clearly ensure compliance with all tax laws, he
cautions. defined. This enables firms to effectively evaluate and balance A
corporation using subchapter S must have 75 shareholders or decisions
associated with strategic growth, management of capi- fewer to receive the
benefits of incorporation while being taxed as tal and ownership transition
and succession. a partnership. Other requirements include being a domestic
cor- poration, having shareholders that are individuals or certain estates
ownership options and trusts and having more than one class of stock. Eric
Flicker, CFO of Pennoni Associates in Philadelphia and a In any ownership
structure, deferring ownership success and former ACEC chairman, believes
there is an increasing inter- how owners can cash out is imperative,
Flicker adds. This is a est in employee ownership in one form or another,
including larger problem in smaller firms because often no funding mech-
ESOPs. More and more firms are realizing that professionals anism is in
place for the conveyance of ownership. I A growing number of smaller firms
are realizing that they t is increasingly shouldn't wait for the principal
owner or owners to approach important that retirement before planning to
sell their shares, according to leadership be Colvin Matheson, managing
director of Matheson Financial Advisors, Inc. in Falls Church, Va. Waiting
until retirement able to effectively weakens their exit strategy options,
he says. Planning early manage the various allows owners to capture more
value. demands associated Employee ownership options basically fall into
two broad categories: direct ownership, in which employees hold shares of
with the firm's stock, and ESOPs, where the plan holds the ownership
shares business, strategic and the employee has a proportional share of
the plan. and operational Direct ownership offers several benefits:
physical ownership of the shares, more people participating in the firm's
success, investments, staff incentives and ownership increased employee
commitment, higher retention levels of key transitions. personnel and
entrepreneurial opportunities for engineers to grow within the
organization. Many firms, however, have trouble finding the appropriate
Denys OBerman funding mechanism to enable employees to buy ownership
Oberman assOciates, inc. shares at a fair market price. Also, direct
ownership is not par- 14 ENGINEERING INC. MaY / JUNE 2006
Engineering Inc. - May/June 2006

Table of Contents for the Digital Edition of Engineering Inc. - May/June 2006
