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Grace Period


Questioning the Need for Required Contributions



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During the past 12 months, we have had a partner who has lost her employment twice, has been hospitalized and has had some unexpected expenses for her car and home. It really has been a mounting financial struggle for this individual, who joined our investment club over 12 years ago. Overall, this partner has an excellent record of attendance and has actively served as an officer since our club was officially organized in 1997. Up until April 2009, she has been able to meet her $25 monthly payments.

Our club bylaws allow up to a 61-day period for partners to meet their financial responsibility, and if a partner is not able to do this, he or she then becomes involuntary (in status) and is then completely withdrawn from our investment club.
   
Today I received and accepted a $53 payment (includes the $3 late fee) on behalf of the partner; this donation was provided by another partner who wishes to remain anonymous. However, the donor asked if we need to or should amend our bylaws.

Questions:

1    How are other treasurers coping with “hardship cases” during these difficult economic times?

2    What guidelines do you have written in your club’s bylaws, and do you have any time limits?

Asked via BetterInvesting’s Discussion List for Club Treasurers
   
A.  With unemployment hovering at 10 percent and bankruptcy and home foreclosures at historic highs, many clubs are facing these same issues. Legally, you must follow your partnership agreement. So, unless your partner’s situation changes, she quits or the partnership agreement is changed, this problem will persist.
   
Many clubs add a minimum contribution amount and consequences if the minimum isn’t met. The intent behind this clause usually is to have enough money to purchase stocks regularly; members can lose interest when clubs aren’t investing regularly.
   
There are, however, better ways to deal with this problem. Alternative solutions include other members contributing more, recruiting new members and selling underperforming stocks in the club’s portfolio.
   
I do think you should consider simplifying your partnership agreement’s Capital Contributions section to the one used by the Mutual Investment Club of Detroit, which has been operating for about 60 years. Its agreement reads, “The partners may make capital contributions to the partnership on the date of each periodic meeting in such amounts as the partnership shall determine, provided, however, that no partner’s capital account shall exceed twenty percent (20%) of the capital accounts of all partners.”
   
You’ll notice the section says, “The partners may make capital contributions.” Partners aren’t required to make specified payments at each meeting. Also note that there’s no directive for late payment fees if a partner fails to make a monthly contribution.
   
You also want to consider what’s more important to your club: keeping an actively participating member willing to serve as an officer or assessing the $3 late fee and ensuring the ability to purchase another share of stock. Financial institutions give you a grace period and then start charging late fees. You need to decide whether that’s how you want to treat your members.
   
Modifying your partnership agreement should also make your officers happy because it will simplify their jobs. No longer will they have to worry about checking whether any members are late with payments, any members are more than 60 days behind and any late fees were charged and paid. In my experience officers — treasurers in particular — are difficult to keep. By changing your partnership agreement, you may also gain the benefit of improving the retention rate of your officers.
   
Simplicity is often the best approach. Members who are underperforming will usually leave of their own accord. As the partner is an active participant in the club, the amount of money she contributes should not be a concern.


Colleen Mulder-Seward is a BetterInvesting member and freelance writer.


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