Transcript Structure and Documentation of Club Membership Programs

Structure and Documentation of
Club Membership Programs
Types of Membership Programs
• Equity
• Non-equity
Types of Membership Programs
• Equity
– Developer forms nonprofit club entity (“Club”)
– Developer contracts with Club to construct
and convey facilities in exchange for rights
– Developer sells memberships to recoup costs,
profit (?)
– Developer retains right to control until
memberships / property sold
– Ultimately members take control
Types of Membership Programs
• Non-Equity
– Developer/owner retains complete control
over management and operation
– May operate on daily fee, semi-private or
private basis
– Memberships are mere licenses to use
facilities
Types of Membership Programs
• Non-Equity approaches
– “Right to Use” (with or without refund/payment
on resignation)
– “Membership Deposit”
• Initial payment by member treated as loan to club
• Club unconditionally obligated to repay by date
certain
– “Convertible to equity”
Types of Membership Programs
• “Founder” Memberships
– Class of membership, not type of program
– May offer in equity or non-equity club
– 3 basic structures:
• Limited partnership interest
• “Investor” who loans substantial money to help
facilitate construction
• Early members who help jump start sales receive “founder” designation and extra perks
Avoiding Securities Issues
• “Howey” investment contract analysis
– No dividends or distributions of income
– Restrict ability to transfer, pledge
– Any payment on resignation must be
contingent and limited
– Marketing must disclose restrictions and avoid
emphasis on profit potential
Avoiding Securities Issues
• California “Risk Capital” analysis
– Not dependent on sales proceeds to construct
facilities
– Members should not be entitled to refund on
resignation (avoid “evidence of
indebtedness”)
Membership Documentation
• Equity
– Membership Application
– Membership Agreement
– Articles of Incorporation and Bylaws
– Club Rules
– Agreement for Transfer of Club Property
– Escrow Agreement
– Lease Agreement
– License Agreement
– Summary of Membership Plan or similar document
Membership Documentation
• Non-Equity
– Membership Application
– Membership Agreement
– Membership Policies
– Club Rules