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The Dos and Donts of investment groups

After ten excruciating months of moving their CDSC account from Nyege Stockbrokers to Tabiabora Stockbrokers, and negotiating a payment plan with KRA, the three SWEET members finally liquidated the group’s shares and paid off whatever was due to the taxman.

Despite the hell they had gone through, two of the SWEET members were still convinced that an attempt should be made to revive the chama, reconvene all the members and start afresh. They had all gone through a very steep and very painful learning curve.

“Come on guys”, implored Makena. “We’ve got to give it another shot. Yes, we have failed, but I really believe that there is value in failing. Failures are lessons, and what you can draw out of each failure is experience and knowledge that will help you succeed better. If you’ve never failed, you’ve never lived.”

“Sorry, I’m out”, said June throwing up her arms. “This entire nightmare has left me emotionally drained and devoid of any will whatsoever to have anything to do with investment groups or chamas ever again.” “I’ve lost money, I’ve lost friends, and I just don’t have the strength to start all over again.” Despite all attempts by Awino and Makena, June had checked out and there was no amount of convincing that would change her mind.

“Before we call the others with our proposal to revive SWEET, Awino, let’s understand, from all our experiences, the Do’s and Don’ts,” said Makena:

–    Keep the main agenda of investment group meetings strictly to business. Any social agenda can be dealt with after the official business meeting is complete.
–    Use credible professionals to handle your transactions – from accounts to legal matters.
–    Comply with all government statutory and regulatory requirements – auditing accounts every year, paying all taxes due.
–    Proper research and due diligence before making any decision to invest.
–    Keep proper records of all your internal and external correspondence, financial and legal transactions.
–    Set up appropriate (governance) structures to conduct the affairs of the group.

–    Get tempted by “once-in-a-lifetime” investment opportunities.
–    Fail to disclose to other group members, family and related parties that are involved with or a part of the investment transaction.
–    Depend solely on the advise of someone who is going to benefit from an investment transaction you make, e.g. a stockbroker.
–    Let friendship prevent you from having difficult discussions with fellow group members –but think before you speak.
–    Give any of your fellow members any reason whatsoever to mistrust you. Once the trust is no more, the group is no more.

When the first meeting in just over a year was convened, five of the 12 members had opted to sell their shares in SWEET and leave the group. They were willing to take whatever loss in their overall investment. As a private company, pre-emptive rights applied to any sale of shares by shareholders, and the seven remaining shareholders were offered the stake in proportion to their current shareholding. The shares were valued according to the net asset value per share. Only Awino and Makena agreed to buy the shares of the exiting members.

One of the major decisions made by the members who agreed to stay on was that it was no longer necessary for all members to own exactly the same amount of shareholding as each other. Since inception they had always agreed to maintain a culture of “equity” at all times, regarding shareholding and decision-making. However, the new and improved SWEET had decided to adopt a new, bolder, more progressive approach to investing, where every member would be encouraged to invest as much as they could in SWEET, and to use SWEET as their primary investment vehicle.

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Other “bold” decisions had been made at this first meeting. “After all we’ve been through, why don’t we transform SWEET into a serious investment company? If we’re contributing money to this company, why can’t we run this company just as seriously as the companies we all work for are run?” asked Njambi.

Eyeing her quizzically, Rachel responded, “But we’re just a chama……, chamas aren’t “serious” businesses! “Why not?” asked Njambi. “Well, because, because……” Rachel didn’t have an answer to this simple question.

By the end of their meeting, the group had resolved to discuss, at the next meeting how they could transform SWEET into a serious investment company. In particular, the members wanted to understand what they needed to do to restructure SWEET into this “serious” company, and how they could develop a clear plan to transform SWEET into a wildly successful investment company.

(Origins Investment Group Advisors

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