UnThreaded | Threaded | Whole Thread (6) | Ignore Thread Prev | Next
Author: ripwest Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 7258  
Subject: Re: Member Leaves Club Date: 5/12/2000 1:39 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4
Well, first of all, I give you the obligatory advice not to try to keep everyone equal. Yes, that means converting to a unit system, but you will be so much better off after doing that. Please read the following on the NAIC website.


Equal Partners and Why That Doesn't Work - by Herb Barnett
http://www.better-investing.org/clubs/equal-partners.html


I assume that I haven't convinced you (I seldom do, until the situation gets so bad that the clubs are forced into unit accounting) Therefore, I will point out a few things for you to consider. There are two ways the partners coming in can be equal. They can (1) contribute an amount equal to each partners worth in the club, or (2) contribute an amount equal to the basis of each partner in the club. Obviously, if your club has done well, the first alternative is preferable. Assuming you do that, their basis will not be the same as the other partners. This is no big deal, if it weren't for the fact that you are not using unit based accounting. You should look to your partnership agreement and see how you allocated gains and losses for the year. Do you do it on the basis of capital accounts? If so, do you define capital accounts? It is very possible, in the absence of unit based accounting and an agreement based on unit based accounting that your income will have to be allocated on the basis of capital accounts (read book value as compared with fair market value).

Finally, I would urge you to do everything through the club. That is to say, don't have the new partners pay the outgoing partners directly. Have the new partners make their contributions to the club, and have the club pay off the old partners.

This is a very brief recap of the problems involved. I would be glad to go into more detail if you wish.

rip
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (6) | Ignore Thread Prev | Next

Announcements

Starting a Club
Learn how to start and run your own club, the Motley Fool way!
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Value Hounds

Clorox Isn't Cleaning Up
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement