Hello,
I am currently in the process of starting an investment
club, so I could use some ideas and information. Being a
recent college grad I would like to start a club of other
young business professionals.
What is a good amount of Partners to have in the club?
I have also been researching the IRA's policies on filing
taxes for a Partnership.
Are there any tax issues that I should be concerned when
starting the club?
Can I have members in other States?
Is there a good way to find quality members?
I know bivio has accounting.
What is the most simple way to keep the accounting records?
With Software?
If you have a successful way to keep records, I am
interested.
How diverse should we make our portfolio? (example. How
many companies, markets, bonds, etc. should we invest?)
Should I do the investment club with friends?
Has anyone had problems if someone wants out?
Should I join the NAIC for guidance?

OK, those are the questions for now. I know some are
negative, but I have to see what problems I'm going to have
before I start up this business venture.

You can email me specifically at seth_invests@hotmail.com

Thank you for your help

-Seth

Seth Weiland wrote:
> Hello,
> I am currently in the process of starting an investment
> club, so I could use some ideas and information. Being a
> recent college grad I would like to start a club of other
> young business professionals.
> What is a good amount of Partners to have in the club?
> I have also been researching the IRA's policies on filing
> taxes for a Partnership.
> Are there any tax issues that I should be concerned when
> starting the club?
> Can I have members in other States?
> Is there a good way to find quality members?
> I know bivio has accounting.
> What is the most simple way to keep the accounting records?
> With Software?
> If you have a successful way to keep records, I am
> interested.
> How diverse should we make our portfolio? (example. How
> many companies, markets, bonds, etc. should we invest?)
> Should I do the investment club with friends?
> Has anyone had problems if someone wants out?
> Should I join the NAIC for guidance?
>
> OK, those are the questions for now. I know some are
> negative, but I have to see what problems I'm going to have
> before I start up this business venture.
>
> You can email me specifically at seth_invests@hotmail.com
>
> Thank you for your help
>
> -Seth
 
We set our maximum number of partners allowed in the club at 15. This was
done primarily to help make the club easier to run particularly in the
beginning. We are now in the process of raising the maximum number allowed
to 20. We have been organized as a club for 3 1/2 years now and feel it is
time for an increase... not to mention, it will bring in "new blood" who may
sometimes see things that we may not.
Each member of the club must file a tax return. The club itself must report
to the IRS. All the tax forms are available on www.bivio.com and will print
out the information automatically at tax time for both your club and the
members. This is a very simple part of the club!
As far as having members in other states, I think it is somewhat a "gray"
area. An investment club is designed for members to ACTIVELY get together
for the purposes of investing. If you have members in other states that are
not ACTIVE, and simply send in their monthly membership dues, I think the
IRS may look at that (if they would) as a mutual fund. I read once on bivio
that there were big penalties if the IRS determined that an investment club
was merely a front for a mutual fund type investment... but you would need
to do more research on that. However, I think that as long as an out of
area member does remain active with the club, there should be no problem.
Bivio is perhaps your best and easiest way to keep track of your account.
It is pretty much automated. The trick is to have a club treasurer that
"wants" to be the treasurer... this is a vital job and requires time and
dedication at perform correctly!
Your portfolio diversity would depend on what your club wants to do. Set a
time frame to work with...perhaps 2-3 years, or 7-10 years, or whatever.
Then build your diversity around that goal. Of course the longer you have
to work with a portfolio, the more risk you could possibly take. After your
initial time frame is met, reset another time frame. If you have a turnover
of members, your goals may change with the newer members.
We have had a couple members "terminate" their membership over the past few
years. It creates no problem for the club AS LONG AS you have in your
by-laws a generous time frame for allowing the club to acquire the money
necessary to "buy the member out".
Our club was a member of the NAIC the first year. We however, let our
membership expire once we were comfortable with both our own investment
research and using bivio.com. The only real reason we joined NAIC
originally was to get their accounting software and because it made us
"feel" sort of "legal"... since most clubs seem to be members of the NAIC.
 

I have included answers with your original message:

  Seth Weiland wrote:

  > Hello,
  > I am currently in the process of starting an investment
  > club, so I could use some ideas and information. Being a
  > recent college grad I would like to start a club of other
  > young business professionals.
  > What is a good amount of Partners to have in the club?

  We currently have 10 (we are 1yr old) and we have a
  maximum of 20 as set
  in our Partnership agreement. We also limit the percent
  that a member
  can hold to 15% that way if a member withdraws, the club
  won't take a
  huge hit. We also have a minimum monthly payment of $30
  and a max of
  $100, if you are over 15% ownership however, you may only
  do the
  minimum.

  >
  > I have also been researching the IRA's policies on filing
  > taxes for a Partnership.
  > Are there any tax issues that I should be concerned when
  > starting the club?

  You will need to get a federal Tax Id number, but this is
  very simple
  and if it isn't during tax season they can sometimes do it
  right over
  the phone. Check your state for any specific requirements
  as well.

  >
  > Can I have members in other States?

  Yes, but that will add another wrinkle in how to conduct
  meetings,
  collect payments, etc. One of the biggest downfalls of an
  investment
  club is inactive members, they can really tear a club
  apart. I would
  advise against this, at least for the first year or so.

  >
  > Is there a good way to find quality members?

  Check on the Motley Fool, see if your area has a local
  chapter of the
  NAIC, they typically hold networking meetings.

  >
  > I know bivio has accounting.
  > What is the most simple way to keep the accounting records?
  > With Software?

  Yes, using Bivio is by far the EASIEST and CHEAPEST method
  of keeping
  records. The only other convenient way is with the NCA
  accounting
  software, but it isn't as convenient or economical as
  Bivio.

  >
  > If you have a successful way to keep records, I am
  > interested.
  > How diverse should we make our portfolio? (example. How
  > many companies, markets, bonds, etc. should we invest?)

  That would be set forth by your members, ultimately you
  will want to get
  a group of like minded individuals together, set these
  guidelines at the
  very beggining. I am not saying exact percentages, but a
  rough idea,
  like this club will invest primarily in the Financials
  sector with
  minimal tech investments and we will keep an amount of
  money in bonds as
  well. Or this club will only invest in High growth
  potential companies.

  >
  > Should I do the investment club with friends?

  That is the easiest way to start, just MAKE SURE to have a
  partnership
  agreement and that EVERYTHING is laid on the table right
  at the
  beginning.

  >
  > Has anyone had problems if someone wants out?

  No, it is a very simple matter to "cash-out" someone. This
  would also be
  outlined in your PA.

  >
  > Should I join the NAIC for guidance?

  I would just for the Better Investing magazine
  subscription. That and
  the SSG is a VERY useful tool to start your research of a
  company.

  >
  >
  > OK, those are the questions for now. I know some are
  > negative, but I have to see what problems I'm going to have
  > before I start up this business venture.
  >
  > You can email me specifically at seth_invests@hotmail.com
  >
  > Thank you for your help
  >
  > -Seth

  Tim Chatterton

Jimie Phares has made an excellent response to the process
of starting an investment club. There is one item in his
response which I would like to clarify. He
said.................

<<
As far as having members in other states, I think it is
somewhat a "gray" area. An investment club is designed for
members to ACTIVELY get together for the purposes of
investing. If you have members in other states that are not
ACTIVE, and simply send in their monthly membership dues,
I think the IRS may look at that (if they would) as a mutual
fund. I read once on bivio that there were big penalties if
the
IRS determined that an investment club was merely a front
for
a mutual fund type investment... but you would need to do
more research on that. However, I think that as long as an
out of area member does remain active with the club, there
should be no problem.
>>

The IRS does not care if the members are ACTIVE or not. If
the investment club is properly set up as a partnership, the
IRS will never raise the question of being a 'front for a
mutual
fund'. The writer probably was thinking about the SEC, which
does have a policy of wanting certain entities to be
registered
with them, if such entities include inactive partners who
let
others manage their funds. Very few, if any, investment
clubs
will run afoul of the SEC in this regard, since there are
many
escape hatches. The mere fact that members are spread out
over several states does not make them inactive in this day
and age of email and website programs like bivio.

Again, it was an excellent response, and I offer this only
to
try to forestall further propagation of the idea that the
IRS has
problems with 'inactive' members.

Rip West
Saint Paul, MN
trez_talk@bivio.c

Rip West wrote:
> Jimie Phares has made an excellent response to the process
> of starting an investment club. There is one item in his
> response which I would like to clarify. He
> said.................
>
> <<
> As far as having members in other states, I think it is
> somewhat a "gray" area. An investment club is designed for
> members to ACTIVELY get together for the purposes of
> investing. If you have members in other states that are not
> ACTIVE, and simply send in their monthly membership dues,
> I think the IRS may look at that (if they would) as a mutual
> fund. I read once on bivio that there were big penalties if
> the
> IRS determined that an investment club was merely a front
> for
> a mutual fund type investment... but you would need to do
> more research on that. However, I think that as long as an
> out of area member does remain active with the club, there
> should be no problem.
> >>
>
> The IRS does not care if the members are ACTIVE or not. If
> the investment club is properly set up as a partnership, the
> IRS will never raise the question of being a 'front for a
> mutual
> fund'. The writer probably was thinking about the SEC, which
> does have a policy of wanting certain entities to be
> registered
> with them, if such entities include inactive partners who
> let
> others manage their funds. Very few, if any, investment
> clubs
> will run afoul of the SEC in this regard, since there are
> many
> escape hatches. The mere fact that members are spread out
> over several states does not make them inactive in this day
> and age of email and website programs like bivio.
>
> Again, it was an excellent response, and I offer this only
> to
> try to forestall further propagation of the idea that the
> IRS has
> problems with 'inactive' members.
>
> Rip West
> Saint Paul, MN
> trez_talk@bivio.c
 
Thanks for correcting me... I knew I heard something about it somewhere! I really appreciate it!
Jimie

I say thanks for the information. I appreciate everyone's
input. Hopefully, it will be a success. I will probably be
posting more questions as more arise.

thank you,

 -Seth