Step 4 – The Business Model of your Investment
Club
Your investment club will need to decide what
type of entity you’re going to adopt for business
purposes. You’ll have to decide whether you’re going to
be a corporation, a general partnership, or
a limited liability partnership. Each of these
business models has their own advantages and
disadvantages.
Corporation. Most investment clubs will avoid
becoming a corporation. This is because
corporations are taxable business entities that
require knowledgeable accounting skills to make
them run smoothly and in accord with government
regulations. A corporation generally means a lot
of paperwork. This paperwork can be avoided by
choosing another business model for your purpose
of running an investment club.
General partnership.
This type of business model requires
less paperwork and knowledge about taxes and
other financial issues. 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 each partner’s
tax returns. This type of business model will let
you accomplish what you need to do to run your
investment club with the least amount of tax
influence.
Limited liability corporations.
This type of a business model is much
like the general partnership but it gives
individual members of your investment group a bit
more liability protection. Keep in mind that this
type of business entity can be expensive and will
need more paperwork.
Members of your investment club will have
to decide which of the above business models works best
for your club.
You will have to make a decision one way or the
other since establishing a business entity is a
requirement for tax purposes.
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