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 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 group 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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