PARTNERSHIP
AGREEMENT
Of
Kagan Capital
Table of Contents
I. Formation ..................................................................................................................................... 3
II. Name .......................................................................................................................................... 3
III. Term........................................................................................................................................... 3
IV. Purpose ..................................................................................................................................... 3
V. Meetings ..................................................................................................................................... 4
VI. Capital Accounts ........................................................................................................................ 4
VII. Capital Contributions ................................................................................................................. 4
VIII. Membership Fee ...................................................................................................................... 5
IX. Valuation of the Partnership ....................................................................................................... 5
X. Trial Period ................................................................................................................................. 5
XI. Partner Status ............................................................................................................................ 5
XII. Member Status ......................................................................................................................... 5
XIII. Investor Status ......................................................................................................................... 5
XIV. Management ........................................................................................................................... 5
XV. Sharing of Profits and Losses ................................................................................................... 6
XVI. Book of Account ...................................................................................................................... 6
XVII. Annual Accounting and Partnership Audit Committee ............................................................. 6
XVIII. Bank Account ........................................................................................................................ 7
XIX. Broker Account (Option House) ............................................................................................... 7
XX. No Compensation ..................................................................................................................... 7
XXI. Additional Partners .................................................................................................................. 7
XXII. Transfers to a Trust ................................................................................................................ 7
XXIII. Removal of a Partner ............................................................................................................. 7
XXIV. Termination of Partnership .................................................................................................... 7
XXV. Voluntary Withdrawal (Partial or Full) of a Partner (Suspended during trial period) ................ 8
XXVI. Death or Incapacity of a Partner ............................................................................................ 8
XXVII. Terms of Payment ................................................................................................................ 8
XXVIII. Forbidden Acts .................................................................................................................... 9
XXIX. Tax Logistics ......................................................................................................................... 9
XXX. Traders & Leadership ........................................................................................................... 10
XXXI. Earnings Distribution ........................................................................................................... 10
XXXII. Investment Logistics (Suspended during Trial Period) ........................................................ 10
XXXIII. Trade Strategy .................................................................................................................. 10
XXXIV. Standard Operating Procedure (Created During Trial Period) ........................................... 10
XXXV. Liability/Disclaimer ............................................................................................................. 11
XXXVI. Signatures ........................................................................................................................ 11
This AGREEMENT of PARTNERSHIP is made as of the 7th of May 2012 by and between the
undersigned partners.
I. Formation
The undersigned hereby form a General Partnership in, and in accordance with the laws of, the
State of Virginia.
II. Name
The name of the Partnership shall be Kagan Capital.
III. Term
The Partnership shall begin on the 7th of May 2012 and shall continue until December 31st of the
same year and there after from year to year unless earlier terminated as hereinafter provided.
IV. Purpose
The purpose of the Partnership shall be to invest the assets of the Partnership in options, stocks,
bonds, and securities for the financial and educational benefit of the Partners, while employing
fundamental principles and techniques of sound investment practices.
Everyone has the ability to invest independently. However, when investing independently, most
people only manage to break even. One of the reasons for this is they are limited in their ability
to research many different ideas. They are stuck just being able to make an investment in one
sector every now and then because they do not have the time to research multiple sectors.
Another way that they are limited is in the amount of money they are able to invest. This limits
one’s ability to properly diversify one’s portfolio.
Kagan Capital is a collaborative group investment portfolio. It is built using research performed
by a select number of participants (ideally 10-30 people). The idea is to divide the investors up
into groups assigned to research stocks in different sectors (Consumer, Services, Healthcare,
Energy, Technology, Financial, Industrial, Materials, and Utilities). This will give us the ability to
build a portfolio that is intelligently designed using research performed on multiple market
sectors. Having this research will not only let us make better investments, but it will also allow
us to build a more diversified portfolio.
With 10-30 people, we can divide up into four to five teams that will each be responsible for
following different sectors. Contact among the teams does not have to happen daily, just enough
so that ideas are being collaborated on and sectors are being sufficiently researched. Each week,
between all of the groups, we come up with one (or more if there are many great ideas) new
investment opportunities. The diversification may start slow, but at least we will start with a
very well researched and strong portfolio. Over time this will build into the well diversified and
informed portfolio that we are envisioning. Since we all are busy with our everyday lives, we
will set goals and develop strategies as we go based on what the group as a whole desires. We
view this as a learning experience that will help all of us to grow as investors and hopefully come
out with a little more money in our pockets. We cannot promise anything in terms of monetary
gain, but we can promise that you will gain hands-on investment knowledge which will help you
build your future.
V. Meetings
Weekly Investment meetings shall be held every Sunday to discuss the coming week’s trading
strategies and opportunity
Quarterly meetings (Both online and in person) shall be held every three months and deemed
necessary by the partners of Kagan Capital
VI. Capital Accounts
*Calendar year 2012 will be a trial period. Your account value will be based on your beginning
contribution percentage divided by Kagan Capital’s end of year value.
Example: Invest $500 into a $10,000 original portfolio results in a 5% equity in the portfolio. If the
ending value of the portfolio is $15,000 then your new account value is worth $750
*The following is intended for calendar year 2013
There shall be maintained a capital account in the name of each Partner. Any increase or
decrease in the value of the Partnership on any valuation date shall be credited or debited,
respectively, to each Partner's capital account on that date. Any other method of valuating each
Partner's capital account may be substituted for this method, provided the substituted method
results in exactly the same valuation as previously provided herein. Each Partner's contribution
to, or capital withdrawal from, the Partnership shall be credited or debited, respectively, to that
Partner's capital account. This will be done through an online investing club accounting software
which will allow us to have more flexibility in managing individual accounts.
VII. Capital Contributions
The starting investment amount for each person will be a minimum of $500. This is not a
fantasy football, poker or NCAA bracket league where you throw some money into it just for fun.
Kagan Capital is supposed to be just as fun as any of the aforementioned hobbies but not as
risky. Do not compare this investment to what you would invest into a fantasy football league. In
order to invest yourself online, you usually need a minimum of $1000 - $1,500. Kagan Capital is
allowing you to invest for less than that. With 10-30 people, this will give us an estimated total
portfolio worth of $5000-$15,000. This is probably way more than each of us would be willing to
risk on our own and it also gives us the ability to better capitalize on our investments.
*Calendar year 2012 is a trial period. The following will take place starting in calendar year 2013
Each quarter (every three months) there will be an additional investment of $100 per person
which is to be paid by the third day after the quarterly meeting. Members are allowed to make
optional additional contributions in any $100 increment(s). We will send out a reminder no
fewer than 2 weeks prior to the dues being payable. The purpose of the additional investment is
to ensure that members maintain their interest in the exchange and also to increase our
investing power.
Partner’s status members will each make mandatory quarterly investments of $100 at regular
quarterly meetings. Partners may also make optional additional contributions in any $100
increment(s). Regular monthly contributions, normally collected at meetings, are due prior to
the scheduled meeting in the case of any planned absence, or by the end of the third day after the
meeting from anyone who was unable to attend that monthly meeting due to an emergency or
illness. The purpose of the mandatory additional investment is to ensure that partners maintain
their interest in the exchange and also to increase our investing power.
VIII. Membership Fee
There will be a membership of $25. This money will be used for paying administration and
research costs.
IX. Valuation of the Partnership
The current value of the assets of the Partnership, less the current value of the debts and
liabilities of the Partnership (hereinafter referred to as the "value of the Partnership") shall be
determined within a week prior to the quarterly meeting and the breakdown will be
disseminated at the quarterly meeting.
X. Trial Period
As mentioned above, calendar year 2012 will be a trial period for Kagan Capital. What this
means is there will be no additional capital added to the portfolio during the trial period. At the
end of the trial period you will have the option to continue on with Kagan Capital or leave with
no penalty. The purpose of having a trial period is to be able to work through any growing pains.
The aim is for the trial period to have less of a financial commitment. If you are a part of Kagan
Capital during the trial period you will have Partner status (explained below).
XI. Partner Status
Partner status means that you are a partner in the management of Kagan Capital. This is
different than signing this partnership agreement. A partner in Kagan Capital will be able to
make managerial decisions and be in line for managerial titles. You will have equity stake in
Kagan Capital itself. You will be able to vote and elect both new management and new members
joining Kagan Capital.
XII. Member Status
Member status means that you are a member in the investment decision of Kagan Capital. You
will have a say in only the investing decision in Kagan Capital
XIII. Investor Status
Investor status means that you are only an investor in Kagan Capital. You have no say in the
investing decision of Kagan Capital. There are no membership fees or required meetings. Your
goal is to have Kagan Capital manage your money and provide a return.
XIV. Management
Except as otherwise determined, all decisions shall be made by the Partners whose capital
accounts total a majority of the value of the capital accounts of all the Partners.
Current Titles:
Founders: Kristopher Kagan, Doug Swiatocha, Daniel Kagan
President and CEO: Kristopher R Kagan
Managing Trading: Kristopher R Kagan
Chief Accounting Officer: Doug Swiatocha
Treasurer: Doug Swiatocha
CFO: Daniel Kagan
Open Positions:
Secretary
Chief Operating Controller: (Job is to be objective and to ensure the integrity of Kagan Capital.
Will prevent emotional decisions)
Board Members
Vice President
Lead Trader
Junior Trader
*XV, XVI, and XVII will be unofficial during the trial period. They will be forgo during this time.
XV. Sharing of Profits and Losses
Net profits and losses of the Partnership shall inure to, and be borne by, the Partners, members
and investors, in proportion to the value of each of their capital accounts.
XVI. Book of Account
The Book of Account shall be a complete set of accounts, consisting of assets, liabilities,
individual Partnership accounts, and appropriate revenue and expense accounts. It shall use the
double-entry accounting system. The Book of Account of the transactions of the Partnership
shall be kept and at all times be available and open to inspection and examination by any
Partner.
XVII. Annual Accounting and Partnership Audit Committee
Each calendar year, a full and complete account of the condition of the Partnership shall be made
to the Partners. At this time a complete list of trades and analysis will be provide to every
participant of Kagan Capital. A review of mistakes, lessons and strategies learned throughout the
year will be revealed. The CEO will announce the current condition of Kagan Capital and provide
an outlook and trading strategy for the coming year.
All financial transactions and trades shall be reviewed semi-annually by a Partnership Audit
Committee. The purpose of this is to determine any major or striking flaw in our accounting
processes and our trading strategies. It is to allow us to maintain a partnership that is based
around friendship, trust and integrity.
XVIII. Bank Account
The Partnership will select a bank for the purpose of opening a bank account. Funds in the bank
account shall be withdrawn by checks signed by any Partner designated by the Partnership.
XIX. Broker Account (Option House)
All securities shall be purchased in the name of the Partnership. For the trial period Option
House will be the online brokerage that will be used. Option House has been chosen for its
familiarity among Partners and its low cost structures. Option House also limits us to stocks and
options. Other sites such as TD Ameritrade and Interactive Brokers allow for Forex, futures and
bonds as well. Kagan Capital’s strategy is to focus on what we know best (options and stocks).
We will review at the end of the trial our current brokerage.
XX. No Compensation
No Partner shall be compensated for services rendered to the Partnership, except for
reimbursement of expenses.
XXI. Additional Partners
Additional Partners may be admitted at any time, upon the unanimous consent of the Partners,
so long as the number of primary partners does not exceed the CEO’s partnership limit. There
will be no limit to the number of secondary partners/members.
XXII. Transfers to a Trust
A Partner may, after giving written notice to the other Partners, transfer interest in the
Partnership to a revocable living trust, of which the Partner is the grantor and sole trustee.
XXIII. Removal of a Partner
Any Partner may be removed by agreement of the Partners whose capital accounts total a
majority of the value of all Partners' capital accounts. Written notice of a meeting where removal
of a Partner is to be considered shall include a specific reference to this matter. The removal
shall become effective upon payment of the value of the removed Partner's capital account.
XXIV. Termination of Partnership
The Partnership may be terminated by agreement of the Partners whose capital accounts total a
majority in value of the capital accounts of all the Partners. Written notice of a meeting where
termination of the Partnership is to be considered shall include a specific reference to this
matter. Written notice of the decision to terminate the Partnership shall be given to all the
Partners. Payment shall then be made of all the liabilities of the Partnership, and a final
distribution of the remaining assets, either in cash or in kind, shall be made promptly to the
Partners or to their personal representatives in proportion to each Partner's capital account.
XXV. Voluntary Withdrawal (Partial or Full) of a Partner (Suspended during
trial period)
Any Partner may withdraw a part or all of the value of the Partner’s capital account in the
Partnership, and the Partnership shall continue as a taxable entity. The Partner withdrawing a
part or all of the value of such capital account shall give notice of such intention in writing to the
Secretary at least two weeks prior to their withdrawal. Written notice shall be deemed to be
received as of the first meeting of the Partnership at which it is presented. If written notice is
received between meetings, it will be treated as received at the first following meeting. Any
partner who wishes to buy out the withdrawing partner’s share they are withdrawing may do so
to prevent liquidating positions. The Partnership will not be liable for any payments owed
between partners involved in the buyout.
In making payment, the value of the Partnership as set forth in the valuation statement prepared
for the first meeting following the meeting at which notice is received from a Partner requesting
a partial or full withdrawal will be used to determine the value of the Partner's account.
The Partnership shall pay the Partner who is withdrawing a portion or all of the value of his
capital account in the Partnership in accordance with the Terms of Payment section below in
this agreement.
Full cash out will only be allowed during the quarterly dues period. We must be informed of
your desire to cash out 2 week prior to the date on which the dues are payable (two weeks prior
to the last day of the month prior to the start of the quarter) and we will have your money
mailed no later then one week after the start of the quarter.
Emergencies will be handled on a case to case basis. In the case where you need some money in
an emergency but you still wish to participate there will be a maximum temporary withdrawal
of $500 or half of the partner’s liquid assets. If someone pulls out there will be a mandatory
restructuring meeting that will take place within 6 weeks from the following Monday (or closest
business day). The purpose of this is to understand the impact on our portfolio’s diversification.
*There will be a maximum 5% penalty charged for any early cash out in addition to cost of selling
securities
XXVI. Death or Incapacity of a Partner
In the event of the death or incapacity of a Partner (or the death or incapacity of the grantor and
sole trustee of a revocable living trust), receipt of notice shall be treated as a notice of full
withdrawal.
XXVII. Terms of Payment
In the case of a full or partial withdrawal, payment will be made in cash. When cash is
transferred, the Partnership shall transfer to the Partner (or other appropriate entity)
withdrawing a portion or all of his interest in the Partnership, an amount equal to the lesser of
(i) ninety-seven percent (97%) of the value of the capital account being withdrawn, or (ii) the
value of the capital account being withdrawn, less the actual cost to the Partnership of selling
securities to obtain cash to meet the withdrawal. The amount being withdrawn shall be paid
within 10 days after the valuation date used in determining the withdrawal amount.
If the Partner withdrawing a portion or all of the value of his capital account in the Partnership
desires an immediate payment in cash, the Partnership at its earliest convenience may pay
eighty percent (80%) of the estimated value of his capital account and may then settle the
balance in accordance with the valuation and payment procedures set forth above..
XXVIII. Forbidden Acts
No Partner shall:
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Have the right or authority to bind or obligate the Partnership to any extent whatsoever
with regard to any matter outside the scope of the Partnership purpose.
Except as provided in this agreement, without the unanimous consent of all the other
Partners, assign, transfer, pledge, mortgage, or sell all or part of his or her interest in the
Partnership to any other Partner or other person whomsoever, or enter into any
agreement as the result of which any person or persons not a Partner shall become
interested in the Partnership.
Purchase an investment for the Partnership where less than the full purchase price is
paid for same.
Use the Partnership name, credit, or property for other than Partnership purposes.
Do any act detrimental to the interests of the Partnership or any act that would make it
impossible to carry on the business or affairs of the Partnership.
XXIX. Tax Logistics
Club files Form 1065. However, as a partner in the club, you must report on your individual
return your share of the club's income, gains, losses, deductions, and credits for the club's tax
year. (Its tax year generally must be the same tax year as that of the partners owning a majority
interest.) You must report these items whether or not you actually receive any distribution from
the partnership.
You will receive a copy of Schedule K-1 (Form 1065), Partner's Share of Income, Credits,
Deductions, Etc., from the partnership. The amounts shown on Schedule K-1 are your share of
the partnership's income, deductions, and credits. Report each amount on the appropriate lines
and schedules of your income tax return.
The club's expenses for producing or collecting income, for managing investment property, or
for determining any tax are listed separately on Schedule K-1 and can be deducted by the
individual partners if the partners itemize their deductions on Schedule A (Form 1040). These
expenses are listed on line 22 of Schedule A along with other miscellaneous deductions subject
to the 2% limit.
Passive activity losses. Rules apply that limit losses from passive activities. Your copy of
Schedule K-1 (Form 1065) and its instructions will tell you where on your return to report your
share of partnership items from passive activities. If you have a passive activity loss from a
partnership, you must complete Form 8582, Passive Activity Loss Limitations, to figure the
amount of the allowable loss to enter on your tax return.
XXX. Traders & Leadership
As for the placement of trades there will be two traders. One person will be the primary trader
on the account and the other will serve as a backup junior trader. In order to prevent problems,
the people who make the trades will not have control of the money when it is transferred to an
outside account. We will have a separate person who will be in control of distributing earnings
and managing any issues with someone wanting to cash out.
XXXI. Earnings Distribution
At year end, if the group decides that we want to distribute earnings yearly and not reinvest
them, we will distribute the earnings minus applicable taxes, fees, etc. and thus we will not
collect additional investment dues.
XXXII. Investment Logistics (Suspended during Trial Period)
We will be maintaining a 10 percent liquid assets margin on the account and will be adjusting
the liquid assets quarterly to keep up with earnings/losses. If someone decides to cash out early,
there will be a two week period from the following Monday (or closest business day) to return to
this margin. To start, we will be investing in stocks and options and will be allowing for a max
ratio of 65/25 options to stocks. This is to allow us the room to grow our earnings. We will
asses this distribution and our investment vehicles periodically and make informed group
decisions regarding any changes we wish to make to our current portfolio.
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Max percentage invested in options is 65% ( Max 65/25 ratio options to stocks)
XXXIII. Trade Strategy
Our main trade strategy will be intermediate long-term investments. In the case of speculation
on the future performance of a stock we will follow the current trend of the stock price.
XXXIV. Standard Operating Procedure (Created During Trial Period)
Operating procedures will be decided upon after the partnership is established with the
agreement of all partners. This information will be outlined in an additional document to be
created once the general agreement is signed, but prior to the execution of any trades. The
standard operating procedures document must be signed by all partners prior to any trades
being executed.
XXXV. Liability/Disclaimer
Investments in stocks/options/etc. involves risks and is not suitable for all investors. In addition,
electronic trading poses unique risk to investors. System response and access times may vary
due to market conditions, system performance and other factors. The partnership in no way
guarantees monetary gains and will not be held liable to any losses to any Partner. By signing
this agreement, each partner accepts any and all risks involved in investing and will not, in any
way, hold the Partnership or it’s members responsible for any loss suffered.
This Agreement of Partnership shall be binding upon the respective heirs, executors,
administrators, and personal representatives of the Partners.
The Partners have caused this Agreement of Partnership to be executed on the dates indicated
below, effective as of the date indicated above.
XXXVI. Signatures
Partner (Printed Name)
Partner (Signature)
Date Signed
Partner (Printed Name)
Partner (Signature)
Date Signed