Virtually all suggested partnership agreements include a
provision that "no partner's capital account shall exceed
twenty percent (20%) of the capital accounts of all
partners."

I also read somewhere that there is some ruling that
requires this and that it is not an option.

I am trying to understand the rule, but the way it is worded
in the sample agreements I have seen just doesn't make any
sense (well... to me anyway!) Can anyone help? An example
would probably clear it all up.

Thanks in advance!

James G.

James - I am not aware of any law or ruling which requires any limitations
on the percentage of ownership any individual member may have. From a
practical point of view however, our club felt it would be prudent to limit
ownership in order to prevent any one individual from controlling all the
decisions of the club. I have attached a copy of our club agreement for
your review.

Kevin S.
----- Original Message -----
From: "James" <jamesg@bivio.com>
To: <club_cafe@bivio.com>
Sent: Wednesday, October 17, 2001 1:01 PM
Subject: club_cafe: Making sense of the 20% rule


> Virtually all suggested partnership agreements include a
> provision that "no partner's capital account shall exceed
> twenty percent (20%) of the capital accounts of all
> partners."
>
> I also read somewhere that there is some ruling that
> requires this and that it is not an option.
>
> I am trying to understand the rule, but the way it is worded
> in the sample agreements I have seen just doesn't make any
> sense (well... to me anyway!) Can anyone help? An example
> would probably clear it all up.
>
> Thanks in advance!
>
> James G.

Our club is having a problem with the rule which we incorporated into our
Partnership Agreement. We never were a large partnership but we lost four
out of eight partners last year. Then we added new partners and now three
of four of the long standing partners are now over the 20% limit. Our
voting is based on one-person, one-vote so for us it's not an issue of
voting control. Some are concerned over the limit, but I'd love to hear of
other concerns people may have with large percentage ownership.

John Munn


----- Original Message -----
From: "James" <jamesg@bivio.com>
To: <club_cafe@bivio.com>
Sent: Wednesday, October 17, 2001 1:01 PM
Subject: club_cafe: Making sense of the 20% rule


> Virtually all suggested partnership agreements include a
> provision that "no partner's capital account shall exceed
> twenty percent (20%) of the capital accounts of all
> partners."
>
> I also read somewhere that there is some ruling that
> requires this and that it is not an option.
>
> I am trying to understand the rule, but the way it is worded
> in the sample agreements I have seen just doesn't make any
> sense (well... to me anyway!) Can anyone help? An example
> would probably clear it all up.
>
> Thanks in advance!
>
> James G.
>

John R. Munn wrote:
> Our club is having a problem with the rule which we incorporated into our
> Partnership Agreement. We never were a large partnership but we lost four
> out of eight partners last year. Then we added new partners and now three
> of four of the long standing partners are now over the 20% limit. Our
> voting is based on one-person, one-vote so for us it's not an issue of
> voting control. Some are concerned over the limit, but I'd love to hear of
> other concerns people may have with large percentage ownership.
>
> John Munn
>
>
> ----- Original Message -----
> From: "James" <jamesg@bivio.com>
> To: <club_cafe@bivio.com>
> Sent: Wednesday, October 17, 2001 1:01 PM
> Subject: club_cafe: Making sense of the 20% rule
>
>
> > Virtually all suggested partnership agreements include a
> > provision that "no partner's capital account shall exceed
> > twenty percent (20%) of the capital accounts of all
> > partners."
> >
> > I also read somewhere that there is some ruling that
> > requires this and that it is not an option.
> >
> > I am trying to understand the rule, but the way it is worded
> > in the sample agreements I have seen just doesn't make any
> > sense (well... to me anyway!) Can anyone help? An example
> > would probably clear it all up.
> >
> > Thanks in advance!
> >
> > James G.
> >

I can assure you there is no ruling or law that requires a
rule such as "no partner's capital account shall exceed
 twenty percent (20%) of the capital accounts of all
 partners."

If you contact me, I can help you locate a copy of the
Uniform Partnership Act for your state. It will help clear
up any legal misunderstandings. It will also help you write
or rewrite your current partnership agreement. Many of the
recommended partnership agreements were written under old
partnership laws. New partnership laws have become effective
in many states in the past 2 or 3 years.

This type of rule is applicable to clubs that vote according
to ownership percentage or unit ownership rather than one
vote per partner. It limits each partners voting power to
20%.

An example of the advantage of this rule would apply if your
club votes by percentage of ownership. At some point in the
future if 3 partners own 60% of the partnership and 10
partners own 40% of the partnership. The 3 partners would
have a majority control of the vote. The theory is they
should have the control, because they have the majority of
the money invested.

The problem I have seen in this situation is that it's
difficult to acquire new partners at this point. They either
start out with very little voting power by paying regular
monthly payments, or they need to invest a large amount of
cash initially to increase their voting power.

I belong to 2 different investment clubs. One club has an
ownership limit of 20%, and has a one vote per person
policy. The partnership agreement states that the 20%
ownership rule doesn't apply at anytime there are 10
partners or less. This club has had times where a partner
has reached the 20% limit, and had to discontinue making
regular payments until their percentage dropped.

The flaw that I see in the recommended partnership
agreements that have an ownership percentage limitation, is
they have no rules stating what to do when a partner reaches
the limit. They don't allowed anyone to stop making
payments, nor do they have some type of partical withdrawal
requirement.

The other investment club I belong to doesn't have an
ownership percentage limitation, and it also has a one
person one vote policy. The partnership agreement was
written by an attorney that happens to be a partner in the
club. This club doesn't worry about ownership percentages.
It's setup to transfer shares of stock instead of cash for
withdrawals, and they have very harsh withdrawal penalties
for partners that quit within the first 5 years. These
penalties tend to get a longer commitment from partners, so
we don't have ownership percentages jumping up dramatically
due to dropouts.

I hope this helps.

Debi