Disbanding Payout or Stock
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Disbanding Payout or Stock We are going to disband soon. Can some members take stock only and some take their cash value? Or does everyone have to do the same thing when we close the club? If you know for sure please let me know! It will depend on the partnership agreement or the operating rules that were agreed to by the members. My club has addressed the issue and cash out is the only option. We could vote to change the rules if we want to. Members taking stock can defer tax consequences. I don’t see any way to do both. To generate cash for some members means something has to be sold. What stocks are going to be sold? How are gains or losses on those shares allocated? This is a recipe for conflict in my opinion. I think it has to be cash to everyone or allocate stock to everyone. That’s the only way to make it fair for everyone. Randy Purvis D &C Investment Club Sent from my iPhone > On Aug 27, 2022, at 8:58 PM, Susan J Mueller via bivio.com <user*15197400001@bivio.com> wrote: > > We are going to disband soon. Can some members take stock > only and some take their cash value? Or does everyone have > to do the same thing when we close the club? If you know > for sure please let me know! Thank you Randy, very good points. It gives me the information I need to explain it to them. It's all family members and are usually very cooperative on what we should do. Partnership agreement doesn't specify. The market is so nuts right now. We really need to do stock. Thanks again! > On 08/27/2022 9:22 PM Randy Purvis via bivio.com <user*37247600001@bivio.com> wrote: > > > It will depend on the partnership agreement or the operating rules that were agreed to by the members. My club has addressed the issue and cash out is the only option. We could vote to change the rules if we want to. > > Members taking stock can defer tax consequences. I don’t see any way to do both. To generate cash for some members means something has to be sold. What stocks are going to be sold? How are gains or losses on those shares allocated? This is a recipe for conflict in my opinion. > > I think it has to be cash to everyone or allocate stock to everyone. That’s the only way to make it fair for everyone. > > Randy Purvis > D &C Investment Club > > Sent from my iPhone > > > On Aug 27, 2022, at 8:58 PM, Susan J Mueller via bivio.com <user*15197400001@bivio.com> wrote: > > > > We are going to disband soon. Can some members take stock > > only and some take their cash value? Or does everyone have > > to do the same thing when we close the club? If you know > > for sure please let me know! Susan, There is no requirement that every member's withdrawal be funded in the same way. Unless your partnership agreement states otherwise, you can pay some in cash and others in stock plus cash. Giving appreciated stock allows the receiving member to defer the tax bite until they are willing to take it. In no set of circumstances does a member have a smaller or larger tax liability based on the composition of the withdrawal as a member that receives stock does not assume the club's cost basis, but a cost basis based on their tax basis in the club minus any cash received. The process is usually to sell any losers first so that everyone can benefit from the tax loss. Then allocate the shares that various members want to receive. This may involve setting up a lottery system or other method if more members want shares of a specific company than are available to allocate. Finally, sell any remaining shares to raise cash to complete the withdrawals. The key point to remember is that any gain or loss allocated to a member because shares are sold before you disband reduces/increases their gain loss upon withdrawal. The net of the capital gains realized within the club and the capital gain on withdrawing from the club will remain constant. Ira Smilovitz Thank you Randy, very good points. It gives me the information I need to explain it to them. It's all family members and are usually very cooperative on what we should do. Partnership agreement doesn't specify. The market is so nuts right now. We really need to do stock. Thanks again! |
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