An investment club [1] [2] is a group of individuals who meet on a regular basis for the purpose of investing money. The invested sums can be as little as $10 a month.
History
The idea itself isn't new. The world's first investment club was established in Texas in 1898, back in the days of the Wild West when few investments could be considered safe. Investment clubs were seen as an ideal way of spreading the risk - away from just cattle.[3]
While the first investment club on record dates back to the 1800s in Western America, Various online communities devoted to this type of investing have recently emerged and have contributed to the personal investing boom in the United States. One of the reasons that people come together in investment clubs is to learn how to invest.
Club Types
Contributing Vs Self-directed
Contributing clubs require members to contribute monies to a collective pool on a periodic basis. The periodic basis is typically monthly. self-directed investment clubs simply meet and learn about investing but invest on their own.
Contributing Classifications
The following 4 classifications or 'club types'[4] A Much more detailed discussion regarding the club types exists at the external reference [5]. Each of the different club types has caveats associated with its structure, size and members geographic location.
Small Local Clubs
These are clubs of less than 15 members, who meet locally.
Large Local Clubs
These are clubs of 15 members and up, who meet locally.
Small Internet Clubs
These are clubs of 15 or less members who meet on the internet.
Large Internet Clubs
These are clubs of 15 or more members who meet on the internet.
Conduct Of Business
In order to operate an investment club, business must be conducted in an orderly fashion. The level of formality will very based on the club type (see club type). A typical club will have informal channels of communication via mailing lists, twitter accounts or message boards. In additional to the informal channels of communication, an investment club must set up formal channels of communication to conduct business. Typically, this is done with monthly meetings. Typical meeting agendas include all the normal activity you would expect in an organization with elected officials. A typical meeting agenda [6]
- Role Call
- Old Business - list of any unfinished business from the previous meeting.
Summary Of Votes - Summary of all voted decisions from the previous meeting
- NAV presentation - NAV or the Net Asset Value of the Club will indicate what each club member is worth on paper.
- Available Funds - a pressentation of Available funds to invest.
- Presentation of Current Research - each member assigned to present an investment option will present his/her research.
- Vote to Hold or invest - A vote to hold cach, sell current assets or invest in one of the investment options
- Investment Vote - A final vote on an investment strategy specifying an exact amount to invest and strategy to execute that investment.
- Other Business - Typically, other business will include proxy voting needs or other day to day business operational needs. This could also include options change a brokerage house, or discussions of couter party risk.
- Formal Close of Meeting
Legal Structure
Investment clubs are generally formed as general partnerships, but could also be formed as limited liability companies or limited liability partnerships (in states that allow them). While an investment club could incorporate, the double tax treatment on corporate distributions makes the corporate structure less desirable than a partnership. Typically, a general partnership does not generate any tax liability on its own; instead, any tax liability is passed through to members each year.
In order to understand the legal structure that an investment club should choose, the club should first understand its club type, which according to the cited reference could be a small local club, large local club, small internet club, or large internet club. Each of the different club types will have different legal requirements as well as different reporting requirement to the SEC.
Tax Implications
In the United States Investment club partnerships must file Form 1065 and Schedule K-1s with the IRS each year, and with states that require partnership filings. In the United Kingdom investment clubs and their members are required to submit form 185(new) to HMRC each year. Investment club accounting software can facilitate the management of a club's books and the preparation of tax filings.
Clubs offer the structure and support that many people need to get started investing, and clubs make it possible to get into the market without a big initial investment. The fact that they can accumulate large investment amounts from small individual investments also helps reduce the exposure to risk for individual investors.
See also
External links
Further reading
- Investment Clubs for Dummies by Douglas Gerlach and Angele McQuade (ISBN 0-7645-5409-3), published in 2001
Reference Section
- ^ http://www.sec.gov/investor/pubs/invclub.htm
- ^ http://www.quantprinciple.com/invest/index.php/investment_club/
- ^ http://www.independent.co.uk/money/spend-save/investors-are-slowly-joining-the-club-1584788.html
- ^ http://www.quantprinciple.com/invest/index.php/investment_club/general_guidelines/#clubtypes
- ^ http://www.quantprinciple.com/invest/index.php/investment_club/general_guidelines/#clubtypes typical club types
- ^ http://www.quantprinciple.com/invest/index.php/investment_club/general_guidelines/#conduct investment club conduct of business.
