Reorganize club
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Reorganize club Our club began in 1998 and is losing long term members quickly due to various personal reasons. We started with 15 and currently have 9. The long term member payouts are averaging $9000. We are having to sell stocks at a bad time to make these payouts. We are thinking of reorganizing by selling off our existing portfolio and starting with a clean slate of stock purchases and a core group of members who want to continue the investment club. This would enable anyone who is thinking of leaving to go ahead and those that stay would rebuild the club. We do not want to dissolve our club but want to start over. Please provide any information on the tax consequences, previous ideas from other clubs, pros and cons. Thank you. Linda Hi Linda,
While never pleasant, members leaving doesn't have to be a bad thing. People move on for all kinds of reasons, as you already know.
Everyone owns a percentage of the club's value. If everyone left but you, they would not take away from your value in the club - regardless of the market conditions. And whether your club has $100,000 or $1,000 at the end of the day, the dollar amount really doesn't matter. It's your ability to generate a respectable return.
Look on the bright side. If you are having to sell off losers to payoff departing members, it will only make your portfolio look better. If you sell all your losers and have to dip into stocks that are in the black, all members will incur the capital gains from those transactions. In that case, you are better off asking each departing member to take stock in lieu of cash. They can always cash in the stocks later. Since their cost basis in the club will become their cost basis in those stocks, they will not incur more capital gain than their own percentage. And it will not cost the club anything.
OK, moving on. My club operates in a high transient area. Lots of up and comers getting transferred in and out of the area, so our turnover is a little higher than many clubs. We've always been lucky to get good members, but somehow in 2007, we ended up bringing on a bunch of new people who just didn't mesh well. By the beginning of 2009, I'd had it. Most of our stocks were in the red, so we did exactly what you suggested. In our case, 3 of us staged a coo and wiped out the club. We sold off everything and started over.
Ah yes! Nothing will improve the look of an ailing portfolio better than starting over in an upswing! <G> It's worked out very well for us. We raised our dues and added a couple new members and we are back to being a productive, educational club.
So I say, go for it - especially if you have an overall net loss. Others might kick and scream over it, but the club is all about learning; it's a place to experiment.
Good luck to you. Let us know how it goes.
Lynn Ostrem
Crow River Investment Club
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