At our last meeting, we added a 14th member to our
investment club. This month, we had a member that had to
resign. Our bylaws allow for a member buyout and our club
voted unanimously to allow the new member to buyout the
exiting member. The exiting member, according to our bylaws,
is due an amount equal to 97% of his value. What is the
proper way to handle this from an accounting standpoint?
Should the new member contribute to the club and the club
payoff the exiting member or should the new member write a
check directly to the exiting member? How should this be
recorded in our accounting?

Thank you, in advance, for your help!

Steve Small
smallworld@adelphia.net

Regardless of whether your bylaws allow a buyout or not, you
do not want to do one. The two transactions (new member,
departing member) are independent and should remain so.

Generally, it is best to distribute appreciated stock to the
departing member, in an amount in accordance with your
bylaws. This defers the realization of taxable capital gains
for the remaining members. Alternatively, you can use the
new member's cash contribution or sell losing stocks to
raise cash for the departing member.

Here are some useful links for further information

http://www.bivio.com/trez_talk/mail-msg?t=241800003&s=1

http://www.bivio.com/trez_talk/mail-msg?t=2984700003&s=1

http://www.bivio.com/trez_talk/mail-msg?t=5119000003&s=1

http://www.bivio.com/trez_talk/mail-msg?t=14458100003&s=1

Ira Smilovitz


Steve Small wrote:
> At our last meeting, we added a 14th member to our
> investment club. This month, we had a member that had to
> resign. Our bylaws allow for a member buyout and our club
> voted unanimously to allow the new member to buyout the
> exiting member. The exiting member, according to our bylaws,
> is due an amount equal to 97% of his value. What is the
> proper way to handle this from an accounting standpoint?
> Should the new member contribute to the club and the club
> payoff the exiting member or should the new member write a
> check directly to the exiting member? How should this be
> recorded in our accounting?
>
> Thank you, in advance, for your help!
>
> Steve Small
> smallworld@adelphia.net