Best Practices: We’re Certified, Now What?—The Value of Ongoing Monitoring

Stipula_fountain_pen-300x200The American Land Title Association (ALTA) recently published an article by PYA.  “Best Practices: We’re Certified, Now What?—The Value of Ongoing Monitoring” explores the value of ongoing compliance program maintenance.

Article excerpt:

“After buying a car, how many of us believe that we can drive it worry-free for two years without regular maintenance? Although it’s an appealing idea, the reality is that regular maintenance keeps our vehicles operating at peak condition. This same approach should be considered when a title or settlement agent obtains certification to ALTA’s Title Insurance and Settlement Company Best Practices…Ongoing maintenance of your compliance program provides you, your clients, and your lenders with the confidence that your organization is prepared for whatever may lie on the road ahead.”

View the full ALTA article.

If you have questions about ALTA Best Practices services or would like to request a speaker on this topic, contact Debra Gentry at (800) 270-9629.

PYA Destined for ALTA 2016 Business Strategies Conference

1722-business-man-holding-hand-to-chin-pv-300x225PYA’s Debra Gentry and Eugene McCullough will be getting down to business at the ALTA 2016 Business Strategies Conference, March 16-18, 2016, at the JW Marriott Indianapolis in Indianapolis, Indiana.

Gentry, Director, PYA’s ALTA Best Practices Services Group, will present “Congrats! You’re ALTA Best Practices Certified,” and hopes to dialogue with attendees on a variety of topics, including:

  • How to explain certification to others.
  • How to stay compliant.
  • How to execute a marketing plan to advertise your certification.
  • How to evaluate growth opportunities using your certification.

McCullough, PYA’s Title Industry Service Director, will present “Inside the Minds of Bank Compliance Officers,” to help attendees understand the lender perspective on compliance concerns, their Best Practices expectations, and the regulatory pressures they face.  His second presentation, “On Trial—the Noncompliant Title Agent,” will provide a series of mock trial scenarios to demonstrate how Best Practices adoption and compliance can assist in avoiding costly and uncomfortable situations.

For more information about ALTA Best Practices certification or to request a speaker for your organization or event, contact PYA at (800) 270-9629.

Back to the Best Practices: Where Are Lenders on Best Practices Yesterday, Today and in the Future?

time-travel-300x201In the Tennessee Land Title Times winter 2015/2016 issue published by the Tennessee Land Title Association (TNLTA), PYA’s Eugene McCullough explores the lender’s perspective on ALTA Best Practices in their article “Back to the Best Practices: Where Are Lenders on Best Practices Yesterday, Today and in the Future?”

Excerpt of article:

Lenders are going to turn their attention to Best Practices this year.  Lenders are confused as to what the CFPB ultimately will require in terms of the level of due diligence and oversight of third-party vendors. In the meantime, they are likely to look at what other lenders have been doing in 2015. Unfortunately, since there has been a wide range of different approaches and strategies employed by various banks last year, any unified approach by lenders with regard to due-diligence requirements for title agents is unlikely.”

View the full article on page 13 of TNLTA’s Winter 2015/2016 Issue.

If you have questions about ALTA Best Practices services or would like to request a speaker on this topic, contact Eugene McCullough, PYA’s Title Industry Service Director at (800) 270-9629.

Succession Planning – When It’s Not “All in the Family”

holiday_table__300x225_-300x225As you finish off the last of the leftover turkey sandwiches, you might take the New Year as an opportunity for reflecting upon the successes and challenges of 2015, while thinking about how to improve for 2016.  The introspection can be even more comprehensive for business owners—particularly those of closely held family businesses—approaching retirement age.  Unfortunately, for some business owners thinking about succession planning, the person equipped to lead the business into the next generation might not be sitting around the holiday table.  Whether the next generation lacks the skills necessary to lead the company or simply has interests and passions that take them along different paths, there are alternatives outside of standard sale transactions that will ensure a successful transition.  Some of the following approaches will allow the family’s second generation to benefit from the hard work of the owner, while identifying and rewarding the team tasked with leading the business forward.

Sharing profits with family, without responsibility

If a business owner wants to provide income to second generation family members, but the second generation will not be active in the business, there are options available to facilitate such an arrangement depending on the structure of the business.  The use of preferred shares with preferred dividend returns is a well-established method for those businesses organized as C corporations.  Under the LLC umbrella, there are also profits interests that can be gifted or sold to children not actively participating in the future business.  Caution should be taken in conveying more general ownership interests, as passive-activity loss rules might limit the benefit of any losses incurred should the business decline in future years.

Passing responsibility to future managers, with more limited ownership

If a business owner is moving his business into the second generation, but his family won’t be actively participating in the business management, that business owner would need to identify and incentivize the next generation of business leaders.  While minority shares of a corporation or minority interest in a partnership might be the most obvious solution, there are other alternatives that might do a better job capturing the value those new leaders bring to the organization.  Corporate organizations have done this for a long time, and usually through stock options or other forms of stock-based compensation.  Stock-based compensation allows option holders to participate in future growth of the company, but use of more sophisticated vehicles like Restricted Stock Units or Stock Appreciation Rights might be more effective incentives with less significant impact on core ownership.  For partnerships, using capital interest coupled with the profits interests mentioned above can yield similar results.  Typically, much of the appreciation of the capital interest will hinge on the drafting of the partnership agreement, which would include provisions for allocation, distribution, and liquidation preferences.  Careful drafting of the agreement can ensure that historical owners of the business continue to reap the benefits of their labor, while giving the next generation of leaders the opportunity to leverage their efforts into more significant investments over time.

The S-corporation dilemma

The S-corporation entity choice is an increasingly popular alternative in recent years, so by extension, a large number of business transitions will involve S corporations going forward.  Several of the preferential ownership alternatives mentioned above will not be available to S-corporation shareholders due to the limits that are in place related to multiple classes of stock, and the pro rata distribution requirements.  S corporations are allowed to have one class of stock that has both voting and non-voting shares, so that gives owners some ability to sell value but retain some control.  Use of non-voting minority shares is a good option, but unless all parties are comfortable having new leadership as minority shareholders (with the accompanying per-share distribution rights), S-corporation owners might look to more sophisticated solutions.  One popular alternative involves having family members own (directly or through various entities) any real estate used by the business, with the business paying rents to the real estate owners.  Another alternative, given the correct facts, would involve termination of the “S” election (either through consensual filing or through an intentional rules violation), and then utilization of some of the other vehicles listed above under the C-corporation umbrella.  Extreme caution should be used when terminating the S election, as once terminated, the S election cannot be refiled for five years.  Any plan that involves an S-election termination also should be planned well in advance so that the business can take advantage of any tax attributes that might have limited value after the termination.

Summary

Succession planning is a critical step in the life cycle of a long-lived business, and sufficient time and care should be taken during the process.  If the business will transfer in part to non-family members, the complexity increases substantially.  Every set of facts is different, and the solutions available vary widely as a result.  If you want to discuss your business’s current succession plan, or if you want to start putting the pieces together to begin succession planning, contact Mark Brumbelow or Eric Elliott at PYA, (800) 270-9629.