BI > SEPTEMBER 2005

Options for Structuring Your Club

Introducing a New Column

I am in the process of forming an investment club, but I don't know which business structure to organize by. I am aware that clubs can be organized as general partnerships and LLCs. However, I want to know whether there are other ways to structure investment clubs. If so, what are their pros and cons and what are the factors I should be taking into consideration when choosing a club structure?

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Congratulations on taking the investment club plunge. Investment clubs have six choices when forming a legal business entity. The table on this page summarizes them.

Each one has its own benefits and drawbacks. While most investment clubs are structured as partnerships, this may not be the best business structure for your club. Perhaps your club wants to allow for out-of-state members to be part of the club. An "S" corporation would be out of the question because the laws governing "S" corporations don't allow for multistate clubs.

Founded in 1940 as a partnership, the Mutual Investment Club of Detroit is now structured as a limited partnership. This is an option -- when you choose a business structure, it doesn't mean you'll have to use that business structure forever. When laws change, as they did recently in California (which added an $800 annual filing fee for LLCs and "S" and "C" corporations), it may be in the best interest of the club to make a change as well.

As to the second part of your question, choose the business entity that will provide the best protection for your members while minimizing its costs. Consider consulting an attorney before choosing the business entity option that's best for your club. Laws and fees vary from state to state.

Ask Colleen your club question by writing to colleen@ColleenMulder-Seward.com. Colleen holds an M.B.A. from Wayne State University. Since 2000 she has served on the board of directors for BetterInvesting's Southeastern Michigan Chapter. Colleen also writes the Retirement Intelligence Information Services newsletter for retirementcalc.com.