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P R O F I L E
The growth guy: Peter Stevens President of JCJ Architecture, a local, national, and global architecture, planning, and interior design firm based in Hartford, Connecticut.
By LIISA ANDREASSEN Correspondent
S tevens is responsible for managing the “business of ar- chitecture.” His focus is on the company’s overall finan- cial strength and growth, including the development of new business and market strategies that align with the firm’s long-term vision and goals. A CONVERSATION WITH PETER STEVENS. The Zweig Letter: Internal transition is expensive. How do you “sell” this investment opportunity to your next generation of principals? How do you prepare them for the next step? Peter Stevens: Over the past 20 years, JCJ has transitioned 100 percent of its ownership/shares twice. The first tran- sition was done internally with after-tax dollars for the firm’s third generation of ownership (the firm was founded in 1936). Buyers of shares would personally finance their purchase shares with post-tax dollars. As an S-corp, indi- viduals could use their annual distribution (based on per- centage of ownership) to pay down their personal loans tak- en to pay for their purchased shares. Year-end distribution of profits to shareholders were fully taxable, so purchasers
were buying the shares with after-tax dollars. In addition, all shareholders would loan back to the firm their portion of the operating capital required to start the new year (rang- ing from $2 million-$3 million) based on their ownership percentage. This “operating capital” loan was paid back to the shareholder (without interest) during the course of the year based on the performance of the firm during the year. The “selling” of this process is two-fold – performance/re- ward. Such an internal transition can’t occur without the firm being significantly profitable. Secondly, a majority of the profits (up to 85 percent) were to be distributed to the shareholders during the “buyout term” based on the num- ber of shares owned The second transition occurred when the firm converted ownership to a 100 percent ESOP (S-corp structure). Selling shareholders had the choice of short- and long-term loans, with short-term loans (five years) earning a lower interest rate on their outstanding shares and long-term loans (be- ginning in year six) earning a significantly higher rate of in- terest. In case of the ESOP shares, there was no selling of the concept to employees. There was a significant selling to the
THE ZWEIG LETTER Ju
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