How to Create an Investment Club
With the stock market the top of the daily news and an increase in dissatisfaction with adviser performance, investment clubs - business organizations with the common purpose of similar investments - are becoming more common. Often these will fail and result in court proceedings, unless all parties are clear on what the objective of the club is and how the club functions.
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Instructions
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Find investors with an similar investment objective. This can be conservative bonds or aggressive penny stocks or a variation in between.
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Create a corporation and incorporate into the bylaws the objective of the investment club, what investments are acceptable and which ones are not. Include investment time frames and disclosures that investments have inherent risk and the club cannot guarantee results.
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3
Create membership rules as to who can join, how to join and at what times of the year they can do so. These rules set forth in the bylaws will include monthly membership deposits as well as the exact types of investments approved by the entire membership.
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Discuss with fellow members each person's area of interest. This will create the experts for specific industries within your group, since people will research interests more vigorously.
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Determine how often the club will meet and what its fiscal year is for tax purposes. Elect a Board of Directors, and create timetables for contributions, dues and payouts.
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Have entire Board and all Charter Members sign the agreement to show that, while there is a governing body to the organization, all members are providing input and approving every investment decision.
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Open a brokerage account under that name and tax ID number. Take the monies collected by the membership dues and invest it according to the objectives and approval of securities.
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You can either invest without adviser input or consult with a broker prior to purchasing or selling investments.
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Tips & Warnings
While some investment clubs prefer to have a broker review their research and investment decisions and sometimes even have a broker sitting on the board of directors, it is not required by law to consult one.
Know that for your investment club to remain a club and not be required to register with the SEC, it is important that all members be active in the selection of the securities. If active members make decisions for passive ones, then they are managing the money and issuing shares.
