I'm forming an investment club. What is the best way to form the club with the state? Partnership, LLC, LLP?
1 Answer from Attorneys
Dear Sir or Madam,
There are distinct disadvantages to using the partnership structure. The LLC and LLP have the advantages as to limitation of liability. All three have flow thru taxation, which means that they should not be subject to taxation of income at the entity level.
One of the things that you did not ask but should consider is how you can qualify as an investment club so that you are not subject to a slew of Securities and Exchange Commission (SEC) or blue sky law requirements. Among the issues are whether the interests in the club are securities, whether the club is a de facto mutual fund and whether the person advising the fund is an investment adviser. The SEC's website has a decent explanation these issues.