Investment Clubs

Investment Clubs offer Great Opportunities

Investment Clubs Offer Great Opportunities

Investment Clubs

Investment clubs are a great way to organize and help grow yours and others investments. The National Association of Investment Companies produces a guide to investment clubs entitled Starting and Running a Profitable Investment Club. This can provide a great starting place as it will guide you through the process of forming and operating an investment club.

Most investment clubs are organized as general partnerships. They are the easiest and most economical entities to form, operate, and maintain. The club's income or losses are "passed through" to its partners and are reported on their individual tax returns.

The administration of investment clubs are handled by its members. Members of investment clubs vote on administrative matters and whether to buy or sell stocks. There are two common voting methods: one member, one vote; or a weighted vote based on ownership percentages.

A weighted vote is accomplished by each member voting their percentage of ownership of the club's assets. Various free partnership agreements that you can download provide for voting in proportion to the value of members capital accounts. However, the members of an investment club should decide which is best for them and specify that method in their partnership agreement.

One important thing to remember is that investment clubs usually do not have to register, or register the offer and sale of their own membership interests, with the SEC. But since each investment club is unique, each club should decide if it needs to register and comply with securities laws.

An investment club must register with the SEC as an investment company under the Investment Company Act of 1940 if all of the following three conditions apply: the investment club invests in securities; the investment club issues membership interests that are securities; and the investment club is not able to rely on an exclusion from the definition of investment company.