Investment clubs are a great way to learn about investing and to make sound decisions with the help of other members. They are usually organized as associations, where members study different investments and then vote on whether to buy or sell based on the majority opinion. The most common legal structure for an investment club is a partnership, which requires a partnership agreement and operational agreements. There are many cheap options online that can do this for you, such as RocketLawyer or Nolo, but you may also want to consider getting professional help setting it up at first.
The partnership agreement should outline operational practices and serve as bylaws, addressing all issues that members will face from formation to a specific completion date. The first element must be a statement of the club's name, which will become the name of the company (or in the IRS terminology, “doing business as a name”). Second, the partnership agreement should describe the organisational structure, including the names and responsibilities of officials; quotas or contribution requirements; and the times, dates and locations of the club's meetings. An investment club is generally a group of people who pool their money to invest together.
Club members usually study different investments and then make investment decisions together; for example, the group may buy or sell based on a member's vote. Club meetings can be educational and each member can actively help make investment decisions. An investment club is usually a legal partnership or a limited liability company (LLC). Under these structures, members are considered to be co-owners of the entity and their financial contributions may follow standard accounting rules. A particularly useful resource for investment clubs is the National Association of Investors Corporation (NAIC), a tax-exempt non-profit organization whose membership consists of investment clubs and individual investors.
You can start a stock investment club by following these 10 steps, from finding potential club members to forming a partnership agreement and meeting to make investment decisions. The lessons learned from a properly structured and organized investment club are identical to those that must be taken when making sound individual investment decisions. If there are passive members in the investment group, their membership can be considered an investment in a security. For more than 60 years, BetterInvesting has helped more than 5 million people become successful investors by demonstrating how to actively invest in stocks and manage a stock portfolio in an investment club. Voleo is designed to make it easy for anyone to create an investment club, regardless of their level of experience, making it the best-in-class investment application. NAIC's official guide, “Creating and Managing a Profitable Investment Club” provides all the information needed to establish and operate an investment club.
This is because investment clubs, as well as individual investors, can maintain a long-term investment outlook, while professional fund managers are usually responsible for performance on a quarterly basis. It can be very damaging to an investment club when some members want to invest in high-risk stocks, while others lean towards blue chips. Finding the right members is key to the success of the investment club, as the members' vision must be in line with the investment objectives and philosophies you have in mind as the club's founder. Generally, a membership interest is an investment contract if members invest and expect to profit from the efforts of others. If each member of an investment club actively helps decide what investments to make, the interests of the club members would probably not be considered securities.