Member Withdrawal and Addition of New Members

William L Tedstrom on

Our club has a situation where several members would like to
withdraw, and at the same time we have several members who
would like to join our club. Should these be treated as
separate transactions, or is it possible for a new member to
pay a departing member directly, and we transfer the shares
of the club to the new member?

Rip West on

You should definitely treat the transactions separately. That is to say - have the new members contribute funds to the club and receive units, and withdraw the old members and pay them off.

While there is nothing in the regulations against having sales of partnership interests outside of the partnership, you would then have no record of the basis of the new members. That would mean that the new partners would have to keep track of their own cost basis for partnership units, and maybe make the complex calculations required when they leave the club.

Rip West
Saint Paul, MN

Gene Rooks on

Don't even think about it! Withdraw each member leaving separately, dated
following the valuation that sets their market value. Then enter new
members one by one with whatever payment you are accepting from them to buy
units in the partnership. There are tax implications involved here, so
don't get creative. It is not necessary that new members buy in at the
level of those leaving, or for the club to try and maintain equal
membership, the software takes care of differences in percent of ownership
just fine, giving each member credit for their payments when made.

Gene Rooks, Space Coast Chapter

Lynn Ostrem on

Not possible! This is due to the reporting requirements for tax purposes. But bivio makes it really easy to ring out members and bring in new ones.

If it's not already in your bylaws, you should visit with the departing members and ask them to take stock in lieu of all cash. Then, before voting in the new people, amend your bylaws so that departing members get stock. This creates less hardship on the club.

You will want to sell your losers (for the tax loss) and transfer the stocks with the most appreciation. bivio uses the "member's" cost basis for the stock, not the "club's." They won't be assuming the club's gain, only their own...and then, not until they sell it.

We have wording for this in the Withdrawal section of our Partnership Agreement at www.bivio.com/crowriver under Club Documents. It's pretty standard stuff. But it's there if you need it.

Write back if you have questions.

Lynn Ostrem, VP

Crow River Investment Club

www.bivio.com/crowriver

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