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  1. Are there advantages to organizing as a limited liability company (LLC)?

  2. May a club form as a non-profit organization for tax purposes?

  3. Is an Employer Identification Number (EIN) necessary for the club?

  4. How do I get an Employer Identification Number?

  5. How do the members of an investment club make decisions for the club?

  1. Are there advantages to organizing as a limited liability company (LLC)?
    The members of a LLC normally cannot be held personally responsible for the liabilities of the organization. However, there is very little likelihood that members of a club following NAIC principles will face personal liability for club debts. LLC's are treated like a partnership for federal income tax purposes. In some states, an LLC may be more expensive to form and operate than a partnership, because some states assess organizational and continuing fees which can exceed $300 per year.
     
  2. May a club form as a non-profit organization for tax purposes?
    No. Even though investment education is the primary reason for forming an investment club, making a profit is also an objective. Each member's share of the club's dividends and realized capital gains is subject to federal and state income taxes just like realized capital gains or dividends received by individual investors. Clubs are not commercial businesses, and many banks, brokerage firms, schools, and libraries offer their facilities, without a charge, for club meetings.
     
  3. Is an Employer Identification Number (EIN) necessary for the club?
    Yes. Your club will need the EIN to open an account with a bank or a brokerage firm. It is not advisable to use a member's social security number for the club. Using someone's social security number results in a personal tax liability. Securing an EIN is simple and cost-free.
     
  4. How do I get an Employer Identification Number?
    Contact the Internal Revenue Service (IRS), on the internet or by telephone. Complete form SS-4 before requesting your EIN. You will then be able to request a number by calling your local IRS office.
     
  5. How do the members of an investment club make decisions for the club?
    Members of investment clubs vote on administrative matters and whether to buy or sell stocks. There are two common voting methods:  One member, one vote; or A weighted vote based on ownership percentages.
    A weighted vote is accomplished by each member voting their percentage of ownership of the club's assets. Let's assume that the club's assets total $20,000.00. Member A's capital account is $1,000.00. Member B's capital account is $2,000.00. Member A has 5% of the voting power and Member B has 10%. NAIC's suggested partnership agreement provides for voting in proportion to the value of members capital accounts. However, the members of a club should decide which is best for them and specify that method in their partnership agreement.

<<== Complete Index of Questions

More Questions On Investment Clubs ==>>



**Very Much Highly Recommended Reading**

cover

One Up On Wall Street

Lynch was a portfolio manager who turned Fidelity Magellan Fund into largest and best performing fund in the world under his leadership from 1977 to 1990 with an average annual return of over 29 percent. This book teaches the basic but powerful way to pick great companies.  Peter Lynch has also written 2 excellent follow up books. Learn to Earn: Beginner's Guide to the Basics of Investing & Business and Beating the Street.

 

         

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