Partnership Agreements- The treasurers' perspective (Managment)
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Partnership Agreements- The treasurers' perspective (Managment) Jerry,
I'm the treasurer of a new club and we
are in the process of writing our partnership agreement.
Specifically, as treasurer, what issues should I be most concerned
with?
Your partnership agreement should clearly define
how your club will make decisions on investments, new members,
modifications to your partnership agreement, etc.. The
question is, how should voting be handled?
Most clubs handle voting one of two ways...... in
proportion to each partners interest in the club or equally, where each
member receives one vote regardless of the relative size of their capital
account. Both methods offer pro's and con's. So, let's look at each method a little closer.
Equal votes, where each member is entitled to one vote
regardless of their investment in the club, is just like the votes we make in
most political elections. In this democratic type system everyone is
treated equally. Many clubs are founded with the education of
their members as a key goal. As such, many of these clubs, the Triple E
Investment Club for example, feel that this democratic system is best for
them. All members, including new members with a relatively small
dollar amount invested, have an equal say in the management
decisions of the club.
On the other hand, some clubs choose a methodology
where each member participates in the management of
the club in proportion to their interest in the club. For
example, the Mutual Investment
Club of Detroit uses this method. This system mirrors the method
that we, as stockholders, use when we vote our proxies each year. If
you as a stockholder own 10% of a company, you are entitled to 10% of the
votes cast at the annual meeting, regardless of the total number of
stockholders. As your club matures you may find that some members
have substantially larger investments in the club. Is it
appropriate for new members, who have a very small amount of capital at risk, to
enjoy the same control over the management of the club as those members with a
great amount of capital at risk? Maybe, maybe not, it's up to the
members of your club to decide.
You might ask, if we choose the proportional ownership
method of club management, how do we administer the
vote? It's easy with bivio! Simply go to your
club area in bivio. Select Accounting | Members to see the percentage of
the club that is owned by each member. Assume for a moment that
Member A owns 5%, Member B owns 8%, Member C owns 14%, etc. When
each of these members vote they will get a number of votes equal to their
percentage holdings in the club. In other words, Member A gets 5
votes, Member B gets 8 votes, and so on.
Taking this discussion one step further, your club may
decide to use some variation or combination of these two
methodologies. For example, some clubs use equal votes for making
decisions about the administration of the club, which might include voting on
modifications to the partnership agreement and bylaws, while employing
proportional ownership votes when making investment decisions. For
simplicity, some other clubs use equal votes in all situations unless a member
calls for a proportional vote, then the proportional voting method must be
used.
And finally, you'll want to consider the use of quorums
and proxies. Do you want to require a certain minimum representation
when voting on security purchases and sales? How about amendments to the
partnership agreement? Will you allow proxies for absent
members?
As you can see, the management
of your club is an important issue that must be clearly defined and
understood by each member of your club.
In our next installment, let's discuss withdrawals and
their treatment in a partnership agreement.
Until then, and as always, feel free to send you
questions, comments, and suggestions to Trez_Talk.
Jerry
St.Louis, Missouri
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