Partnership Valuation Considerations
Because your club accounting is based on Units or "shares" of ownership, your club value must be established any time units are purchased or redeemed. Each day the Net Asset Value (NAV) of your club is determined. You can see it on a Valuation report.
It is important that your NAV be correct or any club business you conduct using it will be incorrect. NAV will be correct if all your club transactions have been correctly entered and verified and stock prices for the business day have been updated.
Units are purchased every time a member makes a contribution. For simplicity, we recommend that the number of units purchased be based on the value of a unit at the time the contribution is received in the club brokerage account. We call this the Payment Valuation Date.
By using this date, contributions to your club purchase shares, just like you'd purchase shares in a mutual fund when you send in a payment. People will have different amounts of shares if their contributions are received on different days because the value of your club will change daily as stock prices change. In our experience, having member contributions arrive in different amounts and at different times is inevitable, given that an investment club should be a long term operation. If no other reason, over the long run, you will probably have new members arriving and old ones needing to make withdrawals. Using the date of contributions as the valuation date for the purchase of units simplifies your record keeping. There is absolutely no reason for each member to own the same number of units in a club.
Units are redeemed or "cashed in" whenever a member makes a full or partial withdrawal from the club. We recommend the value of the withdrawal be based on the value of a unit 2 days prior to the meeting following the meeting at which a request for withdrawal is received. We call this the Withdrawal Valuation Date. Putting in a delay between a request for a withdrawal and the determination of the payment amount can be a deterrent to members using the club as a short term investment and disrupting your activities by trying to "time" the market.
Prior to access to computerized accounting, when valuations needed to be determined manually, some clubs specified a single valuation date each month to use as the valuation to conduct all club business for the month. Some clubs still do this. If you would like to do this in your club, adjust the wording in this paragraph accordingly.
You can find out more information about valuation dates here: Valuation Dates
Disclaimer: statements are opinions expressed by bivio Customer Support and are not official statements from any government agency. These statements are not intended to replace professional legal or accounting advice. When in doubt, follow the advice of your lawyer or accountant who is familiar with your particular circumstances and the laws of your state.