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Small Business Stock Is Attractive in ‘16

Feb 9, 2016 | Stockmarket

“The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham

Last week we celebrated and discussed some of the extenders included in the passage of the Protecting Americans from Tax Hikes Act of 2015 (PATH).small business stock

There is one particular extender that small business owners and shareholders should note:

Sale of Qualified Small Business (QSB) stock (Section 1202)

The Short Of It

There are special income tax provisions to QSB stock. One rule stipulates that if you hold QSB stock for more than five years, you can exclude from income a certain percentage of the gain on its sale, subject to some limitations. The percentage has fluctuated over time. There was a 100% exclusion for stock issued after Sept. 27, 2010 which expired at the end of 2014. A 50% exclusion was reinstated.

The 100% exclusion was back in effect for 2015 and PATH now “permanently extends it for future years” and permanently extends the rule that eliminates such gains as an AMT preference item.

Owners Rejoice!

Assuming you have stock and stockholders, you and they are now incentivized to hold it for more than five years to get that sweet 100% exclusion on their tax returns. It may also attract new buyers coming to the market, looking for local investments.

That’ll be good because it’s very possible that…

Buyers May Reopen Their Wallets

Wider and more frequently, we all hope. Those looking to invest mid- to long-term have the opportunity to diversify their portfolios and provide more venture capital to a start-up. Think “Shark Tank,” without the cameras.

This news could even be used in your sales pitch and added to your strategic plan, which you should still be able to recite in your sleep because 2016 is only a month young. Like Doc Brown’s time-travelling Delorean, you should be able to show where you’ve been, where you are, and where you’re going.

Roads optional.

No matter what’s happening, there will always be shareholders looking to sell. It’s half the reason they’re there. It’s good to make sure they are on the up-and-up. Thankfully our grandparents and great-grandparents put some fail-safes in place.

It’s Not Just An Act

The Securities Act of 1933 was written in reaction to the stock market crash of ‘29 and to prevent a repeat.  Best to refresh your memory about it.  Its Rule 144 provides a nonexclusive safe harbor under for selling security holders that seek to resell their restricted securities or control securities. Generally, holding period commences once the shares are fully paid for.

An Either/Or Scenario

If a business owner is looking for investors to to sell shares to someone from another state, the guidelines are set as to marketing the business to the investor. The threat of legal punishment will hopefully force the issue of presenting the stock fairly to the business being pitched or the investment being offered.

Now that we won’t be sideblinded in December this is a great time to glitz up your business for potential investors, partners, or suitors. A little research about them may also speak volumes down the line as well.

Contact us if you have questions about how to best present your business to potential investors.






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I formerly worked as a satellite employee from my home state of New Jersey. I ended my employment with my former employer in 2016. In 2018, I was sued by my former employer for $1.1 million in Illinois State Court. I was referred to Brinen & Associates, LLC by a friend who is a client of the firm. Brinen & Associates, LLC came highly recommended. I contacted Joshua Brinen and then had a consultation at his office with his colleague Mark White. Together, Messrs. Brinen and White explained my options...

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