Have you ever given any thought to starting your own investment club? Before you shake your head no, read this because it is much easier than you might have thought. Over the past few years I have been a member of an investment club and started four investment clubs myself. Starting an investment club doesn’t cost much money at all and can be a rewarding experience if structured properly. I have learned a lot about the best way to start an investment club through trial and error. You can skip my mistakes and structure your club properly from day one.
Here are 10 easy steps for starting an investment club.
1. Make a list of invitees.
Grab your pen and paper and jot down a list of people that you believe would be an asset to the investment club. You want people who are willing to learn about the asset class that you will be investing in. You want to pick a group of people that will be dedicated to the group and meet their commitments. Pick people that fit into the focus of the group as a whole. If not then your investment club can quickly turn into an excuse to eat food and drink.
2. Pick a club name.
This is the funniest part of the process. You want to pick a name that incorporates the focus of your group and one that is fun as well. You can make a list of the names suggested by group members at the first meeting. Put some thought into this name because it will be used for all documents, bank accounts, brokerage accounts, and club filings.
3. Draft a partnership agreement.
This agreement is the formal creation of the business partnership. It should contain the partnership formation date, the partnership’s, fiscal year, profit and loss sharing structure, and rules concerning the termination of the partnership. The partnership agreement should be signed and dated by all of the investment club partners.
4. Craft your bylaws.
The bylaws are your group’s constitution and will determine how business is transacted. The bylaws have to be agreed to by every member. Any member that does not agree with the group’s bylaws should not be in the group. Your bylaws should contain the following:
-rules and regulations
- operating procedures
- responsibilities of each member
- monthly contribution amount
- duties for officers
- terms for officers
- investment objectives
- acceptable investments
- rules concerning adding a new member and removal of an inactive member.
5. File for a Federal Tax ID number.
This is an easy process and can be done right over the Internet. Visit the Internal Revenue Service’s website and request a Federal Tax Id number. This is basically like your group’s social security number. You will use this ID whenever you conduct business on behalf of the Investment Club.
6. Register the club with the state.
You should then register the club as a partnership with the state. Filing fees are minimal at best. In my state, the filing fee is just $25 to form an investment club partnership. If your group will be purchasing a substantial amount of assets and could be subject to potential liability claims then you may want to consider forming a LLC. If you are thinking about forming a corporation, there are plenty of reasons why you should incorporate in Delaware.
7. Select your officers.
Every investment group should have a President, Treasurer, and a Secretary. The President should craft an agenda for each meeting and make sure that business is conducted properly. The Treasurer is responsible for all of the financial transactions (maintaining bank statements, account statements). The Secretary maintains a file of all documents and records all of the pertinent information discussed at meetings.
8. Open a bank account.
Now you are ready to open a bank account. Two or three members should visit the local credit union and open a business account for the investment group. Be sure to always require two or three group member signatures for check writing and account withdrawals. Every member should receive a copy of the bank statement at group meetings.
9. Open a brokerage account.
The group members can now select an online brokerage firm for the group’s investment account. You will need a copy of the partnership agreement, tax ID number, and a form authorizing one of the group’s members to conduct business on the partnership’s behalf. Mail a check along with these forms.
10. Conduct regular meetings.
The group should hold regular meetings. This can be monthly or quarterly. There should also be an annual meeting in which end of year statements are issued and new officers are selected. End of year meetings are the perfect time to amend bylaws and suggest improvements for the investment club.
These steps can be followed for any investment club that you would like to form. If you want to invest in real estate, stocks, bonds, or any other investment, just follow the template listed above.
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