Paying a withdrawing partner
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Ira reads it differently, and the agreement is not well written. I read it as one deducts the lesser of 3% or the actual cost. Ira reads it as paying the valuation amount less the larger of the two costs. (3% or actual selling costs), which yields Ira's interpretation of paying the lesser net. It depends on the antecedent of "whichever", and, after reading it really carefully, Ira's eagle eye and tax regulation reading seems to have gotten it correctly. IF you pay your withdrawing partner the full monte, you either deduct 3% or the actual cost of having to sell stock to meet the obligation. So you pay him either 97% or less, per your partnership agreement. Or, you allow him to withdraw it all as a partial, if there is no ceiling on the percentage for a partial withdrawal, less .5%. I think you need to spend a little more time with the partnership agreement to clear up those options. Peter Dunkelberger
I suggest the language in Scott's agreement inappropriately characterizes the transactions as "purchase/buy." It says the other members may "purchase" the departing member's capital account. Or that the partnership shall" buy" the withdrawing partner . . .. In another section it uses the phrase "pay the purchase price" to identify the payout due the departing partner. When a partner is withdrawing, remaining members may decide to contribute additional capital contributions to acquire additional units, so the club has cash to pay off the departing partner. The new money is not "buying" the capital account of the departing member. When the club pays the withdrawing partner the value of his capital account, it is not "buying" the account. For the agreement language to suggest otherwise just creates confusion. When a partner makes an additional capital contribution, it is a separate transaction from the transactions involving the departing partner. Capital contributions can be the usual monthly, typically equal amount, paid by each partner; or they can be one-off contributions, usually by newer members to increase their percentage of ownership closer to other partners. Accounting wise they are handled the same. Capital contributions made to raise cash when a partner is departing are treated just the same. The contributing partner's tax basis in the new units is based on the current value of the units. It has nothing to do with the basis of the departing partner's capital account. Scott--I would be happy to share the language of my club's agreement with you privately; or there are several sources for sample language when you are ready to amend your agreement. Jack Ranby, Treasurer, Grants Partners Investment Club. I would like to thank everyone that replied. The wording of our agreement came from NAIC in the last century. I tried to get partners to update to the one at bivio without success because we need a unanimous vote. sb Dream big let's say that your account is worth $100,000, do you want to leave $3,000 behind? Let's say the club is worth $1,000,000 as each member leave the last member will get an extra $30,000 for doing nothing.
On Thursday, September 22, 2022 at 12:54:48 PM PDT, Scott Freeman via bivio.com <user*1595500001@bivio.com> wrote:
I would like to thank everyone that replied. The wording of
our agreement came from NAIC in the last century. I tried to get partners to update to the one at bivio without success because we need a unanimous vote. sb That last guy is doing a lot of work, including the taxes and trying to get new members or dissolving the partnership. Ain't no free lunch. But I agree with you, the partnership agreement needs some updating. Peter Dunkelberger
Having a unanimous vote is another change that you need to do to your partnership agreement. You are not sentencing someone to death. John Rice On Thu, Sep 22, 2022 at 5:37 PM Peter Dunkelberger via bivio.com <user*26984900001@bivio.com> wrote:
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