Here is the Q&A that came through with folks looking at the “intermediate” group. These seemed to be consensus of most questions. If you have additional questions, please put them in the comments section and we’ll use this thread to get as much accomplished as we can.
The number 1 question had to do with money and, in one way shape or form, went something like this:
How are any profits distributed?
Yes, I boiled this one down a bit and blunted it, but that’s the essence. After the first three months, the goal is to have 3 months expenses in the bank with any excess amount going out to a vote of the group with the following options: just leave it in the bank; look for another horse; distribute it in the form of dividends back to the members (again, leaving 3 months expenses in the bank).
Not to beat this to death, but while we are going to strive to make a profit I hope you all know now how difficult that is and that it is far from guaranteed.
What is the duration of the group?
As long as it takes. There are no barriers to this group. The LLC will last as long as we are willing to run horses. Every time we are horseless we will re-evaluate and folks will have the opportunity of getting out and, possibly, coming in – or disbanding altogether; this will be part of a group discussion.
Unlike the Racing Club, this is an ongoing obligation and, should things go south, we can’t just throw up our hands and walk away. We’re legally obligated for our share of expenses. If in a year you decide that this isn’t for you, you can sell your share if you’d like but who you sell to would have to sign the group contract. In the past with some of my other groups, when we become horseless is the time to evaluate who wants to stay in and who wants out. At that point, with all the obligations of the group paid, if a few want to walk away (and others may want to join), then that is the perfect time to do so.
In all honesty, what we’ve seen through experience is the world wants to join when things are going well and no one wants to pay the bill if things aren’t going well. I like to tell people to go in planning on never winning a race and be delighted when we do. Keep in mind also that we will be running horses where they belong and that a claim isn’t a bad thing – we won’t be keeping bad horses forever.
What are the tax implications?
You need to talk to your accountant. Every year members will get a K-1 showing profit or loss of the year’s activities. How that affects your individual tax scenario, I do not know.
How are decisions made?
Everyday decisions will be made by Clay and I. If we get an offer to buy a horse we own, that will go out to the group in the form of a poll. Voting will be of short duration, usually 24-hours because time is usually of the essence, so watch your inboxes. There may be the opportunity to discuss potential claims or private purchases through the forum as well depending upon time. However there is virtually no way to achieve consensus on 50 individuals, though a clear majority will rule. In close situations, Clay and I will decide.
Will members need to get licensed?
If the group fills to its 50 member limit, then each member will have a 2% ownership stake, under the 5% threshold to be licensed in MN and IL. However I will check with the Commission and see, for those of you that want to be, if you are still allowed to be licensed if you own under the threshold. Licensing fees are $50 for the license plus fingerprinting ($21.50 to run the prints) and are the responsibility of the member. The licensing of the group is paid for by the group.
How much extra could we have to pay?
As I hope you all know at this point, this can vary. There are vet bills, farrier, shipping, training etc. I think over the course of the year we factor in $2,600 a month for expenses, that’s probably close. How quickly we do or don’t run out of money is contingent on the success we have on the racetrack.
One other thing to remember, if the group fills everyone will be 2% owners. Up considerably from the .05% of the Canterbury Club but, looking at $4750 a month in bills for 2 horses ($14,250 for 3 months) then the average liability per member (estimated), if there are absolutely zero earnings during that period, is $285 every 3 months.
Where will we race?
We will race in Minnesota and Illinois – we will follow Clay.
I hope that this helps somewhat. It may end up generating more questions, and that’s okay too. Just lay them out there and we’ll get ’em answered!