Leaving Member
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Leaving Member Hello, A member of our DIVA! group has decided to leave the group. This is a first for us so are trying to figure out the best and most fair way to give her her share. Whether it be in cash, cash/stock, or all stock. For anyone who has done this before, help!Any suggestions?? Thanks, DIVA Nicole What does your partnership agreement say about how to handle departing members? Colin Wilson, Treas., Doc Stock Inv. Club Nicole, it sounds like your PA gives you the options of giving stock or cash or a combination. If that's the case, I would look at the stocks that have the highest returns in your club's portfolio first as those are the most appreciated. By transferring appreciated stock, the club and the departing member both get to postpone the capital gains. You see, the club's cost basis in the stock "changes" when it's transferred to the cost basis of the departing member's capital account.
If transferring appreciate stock still does not cover the departing member's balance, I would then take the opportunity to "clean house" by ridding the club of losers. That way, the member gets her money, but the entire club benefits from the capital loss on the K-1s at the end of the year. It also cleans up the portfolio and provides a better collection return on the remaining stocks.
Finally, I would use cash on hand to pay the difference.
Hope that helps,
Lynn Ostrem
Crow River Investment Club
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