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Investment club constitution

including wills and probate
Allitnil
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Investment club constitution

#427880

Postby Allitnil » July 15th, 2021, 2:43 pm

I’m a member of an investment club which has become sufficiently successful that tax is now an issue. To minimise future tax liabilities, we are planning on having our spouses join the club and then each gift half of our holdings to our respective spouse.

The club is constituted as a legal partnership and the constitution is closely modelled on the one at https://wiki.timetotrade.com/Investment ... nstitution

We realise that we will need to change clause 6:

6. No member shall assign, pledge, transfer, mortgage or sell any part of his/her interest in the club to another member or to anyone else except as permitted by the authorised procedure for selling back all or part of his/her interest to the club itself.


What we are not clear of is why such a clause exists in the first place. Clause 15 says that anyone breaking clause 6 “shall be expelled from the club” which is a harsh penalty when other actions can only lead to a vote to expel. So it must be important.

Does anyone know the likely background to this clause, and could we be creating legal complications by altering it?

pje16
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Re: Investment club constitution

#427905

Postby pje16 » July 15th, 2021, 4:44 pm

What do your rules say about changing the constitution eg 75% agreement
Then any change will be ok, if minuted and that rule is followed

Loup321
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Re: Investment club constitution

#427968

Postby Loup321 » July 16th, 2021, 7:15 am

I would have thought that clause in your constitution just allowed the club to keep an overall track of who owned what. To me, it says that you can't just give your interest to someone else, without going through the club's formal procedures. Without that clause, you could sell your interest to someone down the pub, but the club wouldn't know about it, and this guy down the pub wasn't a member and wouldn't be eligible to be a member for whatever reason.

Perhaps, if you want the club to maintain the overall picture accurately, add a mechanism for transferring part of a member's interest to another member, and amend that clause to
"...except as permitted by the authorised procedure for selling back all or part of his/her interest to the club itself or the authorised procedure for transferring all or part of his/her interest to another member."
or some other wording, but that clearly only allowed transfer to another member using the authorised procedure for doing so.

Allitnil
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Re: Investment club constitution

#428119

Postby Allitnil » July 16th, 2021, 3:04 pm

pje16 wrote:What do your rules say about changing the constitution eg 75% agreement
Then any change will be ok, if minuted and that rule is followed

Yes, we need at least 75% agreement but we've all agreed to the idea. We've got an EGM scheduled for next month to formally adopt the changes.

Loup321 wrote:I would have thought that clause in your constitution just allowed the club to keep an overall track of who owned what. To me, it says that you can't just give your interest to someone else, without going through the club's formal procedures. Without that clause, you could sell your interest to someone down the pub, but the club wouldn't know about it, and this guy down the pub wasn't a member and wouldn't be eligible to be a member for whatever reason.

Thanks. That's pretty much what we thought and will be amending the rule along the lines you suggest.

9873210
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Re: Investment club constitution

#428131

Postby 9873210 » July 16th, 2021, 3:36 pm

First: I have been involved in a number of small clubs. Often we were required to have certain clauses in our by-laws by third parties such as a University, Insurance company, National affiliated club or the tax code. Whether or not that matters in this case does not appear to have been answered. I imagine that tax laws, or money laundering laws could apply here.

Second: does the existing constitution allow additional members? This might need to be added.

Third: Is it existing practice that all members have equal shares? Is this in the constitution? This makes accounting easier, if it is going to change you will need to adjust your accounting. Not too difficult, unless you forget to do it.

Allitnil
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Re: Investment club constitution

#428166

Postby Allitnil » July 16th, 2021, 5:50 pm

Good points!
9873210 wrote:First: I have been involved in a number of small clubs. Often we were required to have certain clauses in our by-laws by third parties such as a University, Insurance company, National affiliated club or the tax code. Whether or not that matters in this case does not appear to have been answered. I imagine that tax laws, or money laundering laws could apply here.

We all worked in the same industry, but there's never been any limitation on who could join.

We don't see this as any different to gifting shares to a spouse in order to make best use of tax allowances. eg, if I have £100k of shares that are in profit to £20k, I can gift £50k to my wife and we then each have £10k of profit. If we then sell them the capital gains are covered by the individual allowance (assuming no other disposals in the year). Since investment clubs aren't taxable entities and each member has a personal tax liabilty proportionate to their percentage holding, the tax position isn't different to holding an equal amount of shares outside of the club.

Second: does the existing constitution allow additional members? This might need to be added.

It allows them and we've already started the formal process of admitting them.

Third: Is it existing practice that all members have equal shares? Is this in the constitution? This makes accounting easier, if it is going to change you will need to adjust your accounting. Not too difficult, unless you forget to do it.

We started out that way but have had unequal shares since 1999. We use a weighed average of monthly holdings to calculate the annual tax liabilty so it would have been better if we had done this earlier in the tax year. As it is, if we complete the gifting of half our holdings before our September valuation we'll only be transferring 29.2% of the tax liability to our spouses this year but from then on it will be 50%.


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