Hi there,My investment club has been searching for a new way to think about withdrawals. Currently, our partnership agreement only allows money to be taken out of the club if a member quits completely or dies. Now that we're 6 years old, we're not happy with this anymore. Some of us are lobbying for regular distributions - say annually - and others want to keep the money in the club and keep building up the account. We've decided that we need some hybrid solution that allows a member to request a withdrawal if they decide that's the right thing for them. Obviously, there would need to be rules about how that might be done - like how often, what % of the member's funds, how tax consequenses might be handled and I'm sure there are many other considerations. Does anyone have a template that might address this situation? Has your club solved this issue? Has any club tried something and ended up with bad or good unintended consequences? In reading lots of the previous posts, I saw references to sample agreements. Is there a central place where I might find these? All suggustions appreciated.Jo
Here's what our Partnership Agreement says:Terms of Payment: In the case of a partial withdrawal, payment may be made in cash or securities of the partnership or a mix of each at the option of the partner making the partial withdrawal. In the case of a full withdrawal, payment may be made in cash or securities or a mix of each at the option of the remaining partners. In either case, where securities are to be distributed, the remaining partners select the securities. Where cash is transferred, the partnership shall transfer to the partner (or other appropriate entity) withdrawing a portion or all of his interest in the partnership, an amount equal to the lesser of (i) ninety-seven percent (97%) of the value of the capital account in the partnership being withdrawn. Or (ii) the value of the capital account being withdrawn, less the actual cost to the partnership of selling securities to obtain cash to meet the withdrawal. The amount being withdrawn shall be paid within 10 days after the valuation date used in determining the withdrawal amount. If a partner withdrawing a portion or all of the value of his capital account in the partnership desires an immediate payment in cash, the partners at its earliest convenience may pay eighty percent (80%) of the estimated value of his capital account and settle the balance in accordance with the valuation and payment procedures set forth in paragraphs 18 and 20. When securities are transferred, the partnership shall select securities to transfer equal to the value of the capital account or a portion of the capital account being withdrawn (i.e. without a reduction for broker commissions). Securities shall be transferred as of the date of the club's valuation statement prepared to determine the value of that partner's capital account in the partnership. The Club's broker shall be advised that ownership of the securities has been transferred to the partner as of the valuation date used for the withdrawal.The partner asking for a partial withdrawl will pay for the taxes at the end of the year, and your club accounting program will take care of that for you.I think it would be good to ammend your Partnership Agreement to allow partial withdrawls, but if you do ammend, make sure that the new agreement is ratified by a true consensus of the partners.Mike
Jo,Sorry I didn't link this earlier: Here is a link to the IClub website and a sample Partnership Agreement:http://www.iclub.com/clubs/partnership_agreement.aspand a list of introductory links (which may, or may not, be helpful to you.) http://www.iclub.com/clubs/iclub_hub.aspMike
Mike,Thanks heaps for your time and suggestions. I have the sample agreement and it will be useful for sure. Our biggest question surrounds what rules should be in place to control partial withdrawals. We've been operating since 2002 and are just fine with full withdrawals (members leaving the club). Some of our members don't want to buid up a big pot in the club and others (like me) are perfectly happy to let it ride. For those that want to occasionally take some out (or need the cash for emergencies maybe) what should the rules be? Once a year max? 50% max of what they have in? How long has your club been in existance and has there been any withdrawal "behavior" that has become problematic? I can see that the fee would act as a brake on excessive withdrawing. All thoughts appreciated.JoAnn
JoAnn,We've been around since 2000, and while most of our withdrawls have been full withdrawls; occassionally someone will ask for just a partial payment.Frankly, we've never had an issue with the withdrawl process. We try to keep a certain amount of money liquid. We'd like to keep that money for purchases, but sometimes it's used to give a partner cash.Since the partner asking for the cash is responsible for taxes we don't care how often they want cash. Our biggest problem is, trying to decide which company to sell (all or part of) if the club doesn't have the cash sitting in the bank or brokerage.But it hasn't been a problem, because our partners realize that everytime they ask for money to come out of the club--they are essentially selling off part of their ownership.If you feel it could be a problem, you could put in a stipulation that a partner asks for 3 withdrawls in any 12 month period, that partner may be asked to withdraw completely from the club.Mike
Thank you very much. Great suggestion. JoAnn
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