An
investment club
is a group of individuals who meet on a regular basis for the purpose of investing money.
The invested sums can be as little as $10 a month.
The idea itself isn't new. The world's first investment club was established in Texas in 1898, back in the days of the Wild West when few investments could be considered safe. Investment clubs were seen as an ideal way of spreading the risk - away from just cattle.
While the first investment club on record dates back to the 1800s in Western America, Various online communities devoted to this type of investing have recently emerged and have contributed to the personal investing boom in the
United StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
.
An
investment club
is a group of individuals who meet on a regular basis for the purpose of investing money.
The invested sums can be as little as $10 a month.
History
The idea itself isn't new. The world's first investment club was established in Texas in 1898, back in the days of the Wild West when few investments could be considered safe. Investment clubs were seen as an ideal way of spreading the risk - away from just cattle.
While the first investment club on record dates back to the 1800s in Western America, Various online communities devoted to this type of investing have recently emerged and have contributed to the personal investing boom in the
United StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
. One of the reasons that people come together in investment clubs is to learn how to invest.
Contributing Vs Self-directed
Contributing clubs require members to contribute monies to a collective pool on a periodic basis. The periodic basis is typically monthly.
self-directed investment clubsA self-directed investment club is a type of investment club in which members do not make financial contributions, but rather meet on a regular or informal basis to share stock tips and advice, and then invest in their individual portfolios, not in a common club portfolio...
simply meet and learn about investing but invest on their own.
Contributing Classifications
The following 4 classifications or 'club types' are discussed at
typical club types. Each of the different club types has caveats associated with it's structure, size and members geographic location.
Conduct Of Business
In order to operate an investment club, business must be conducted in an orderly fashion. The level of formality will very based on the club type (see club type). A typical club will have informal channels of communication via mailing lists, twitter accounts or message boards. In additional to the informal channels of communication, an investment club must set up formal channels of communication to conduct business. Typically, this is done with monthly meetings. Typical meeting agendas include all the normal activity you would expect in an organization with elected officials. For a typical meeting agenda see:
investment club conduct of business.
Legal Structure
Investment clubs are generally formed as
general partnershipIn the commercial and legal parlance of most countries, a general partnership or simply a partnership, refers to an association of persons or an unincorporated company with the following major features:...
s, but could also be formed as
limited liability companiesA limited liability company in the law of the vast majority of United States jurisdictions is a legal form of business company that provides limited liability to its owners...
or
limited liability partnershipA limited liability partnership is a partnership in which some or all partners have limited liability. It therefore exhibits elements of partnerships and corporations. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. This is an important...
s (in states that allow them). While an investment club could
incorporateIncorporation is the forming of a new corporation . The corporation may be a business, a non-profit organization, sports club or a government of a new city or town. This article focuses on the process of incorporation; see also corporation.-Legal benefits:*Protection of personal assets...
, the
double tax treatmentDouble taxation is the imposition of two or more taxes on the same income , asset , or financial transaction . It refers to two distinct situations:...
on corporate distributions makes the corporate structure less desirable than a partnership. Typically, a general partnership does not generate any tax liability on its own; instead, any tax liability is passed through to members each year.
In order to understand the legal structure that an investment club should choose, the club should first understand it's club type, which according to the cited reference could be a small local club, large local club, small internet club, or large internet club. Each of the different club types will have different legal requirements as well as different reporting requirement to the SEC.
Tax Implications
In the United States Investment club partnerships must file Form 1065 and Schedule K-1s with the
IRSThe Internal Revenue Service is the United States federal government agency that collects taxes and enforces the internal revenue laws. It is an agency within the U.S. Department of the Treasury and is responsible for interpretation and application of Federal tax law. The official U.S...
each year, and with states that require partnership filings. In the United Kingdom investment clubs and their members are required to submit form 185(new) to HMRC each year.
Investment club accounting softwareInvestment Club Accounting Software is typically used to manage:* Member Subscriptions* Ownership / Unit Valuation System* Investment Transactions* Financial Reports* Income / Expenditure transactions* Performance reports* Manage tax returns...
can facilitate the management of a club's books and the preparation of tax filings.
Clubs offer the structure and support that many people need to get started investing, and clubs make it possible to get into the market without a big initial investment. The fact that they can accumulate large investment amounts from small individual investments also helps reduce the exposure to risk for individual investors.
See also
- List of finance topics
- National Association of Investors Corporation
National Association of Investors Corporation , also known as BetterInvesting, is a Michigan-based 501 non-profit organization whose aim is to teach individuals how to become successful long-term investors...
(also known as NAIC and BetterInvesting)
External links
Further reading
- Investment Clubs for Dummies by Douglas Gerlach and Angele McQuade (ISBN 0-7645-5409-3), published in 2001