Preparing the Proper Paperwork Required to Start an Investment Club
Just about anything you want to do which includes mixing your cash with the cash of
others include some type of paperwork to be done. This is also the case when you start an
investment club. The good news is that your investment club does not require a lot of
paperwork to be completed before you can begin making trades. Most of the paperwork
to be handled after the club is established will be much more enjoyable because it will
pertain to the purchase and sell of stocks.
Most individuals who begin an investment club will do so by forming it as a partnership.
By making your club a partnership, it is a lot easier when dealing with the inevitable
taxes. Your group will have to file the proper paperwork for this, which includes an SS4
form, which is for the group’s EIN, or Employee Identification Number. These forms can
be downloaded directly from the Internal Revenue Service’s web site. Once you fill out
the form and send it back in via fax, you can get your EIN almost immediately. At tax
time, your group members will have to individually fill out and file a Schedule K for their
tax returns.
You should also look into filing your group as a business within your community.
Depending on where you live, the rules governing investment clubs may vary
considerably, so do your homework by contacting the proper local offices. Usually it is
just a quick form filled out with the name of your club being registered.
Your group will have need of a brokerage or bank account. This will need to be covered
at the first meeting, and a decision reached by the members. Whether you decide on a
brokerage or bank account, you will need to supply a copy of the group’s Articles of
Incorporation or you Partnership Agreement. These forms can also be downloaded from
online, and you need to take them already filled out with you to open the group account.
For the majority of investment clubs, the only kind of major legal issues which will need
to be taken care of is the taxes. Each member of the group is responsible for filing any
profits made within the year on their income tax return. If the group suffers a loss instead
of a profit, then each individual would file the loss as a deductible expense on their
income tax return. Any expenses the members have from the club can also be deducted,
like the brokerage fees. Of course any tax issues should be dealt with by a professional
tax preparer or an accountant.
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