Your investment club will need to decide what type of entity to take on business. You have to decide if you are a corporation, general partnership or limited liability company.
Each of these business models has its own advantages and disadvantages.
· Corporation. Most investment clubs in order to avoid society. This is because companies are taxable business entities that require specialist accounting skills to make them smooth and consistent with government regulations. Corporation generally means a lot of paperwork. This documentation can be avoided by choosing another business model for your order to manage an investment club.
· General Partnership. This type of business model requires less paperwork and knowledge about taxes and other financial matters. Most investment clubs choose a general partnership as their choice of a business entity. A general partnership has nominal paperwork and costs associated with it because the taxes are passed to the tax returns of each partner. This type of business model will allow you to accomplish what you need to do to run your investment club with the least tax impact.
· The limited liability companies. This type of business model is very similar to the partnership, but it gives individual members of your group investment liability protection a little more. Remember that these cases can be costly and will require more paperwork.
The members of the investment group is to decide which of the above business models works best for the club.
You need to make a decision one way or another due to the creation of a business unit is a requirement for tax purposes.