By Jason Markum

If you are like many people out there, then the thought of investing your own money in the stock market yourself leaves you with a little bit of trepidation and angst. Most people don’t have the training or the skill set necessary to invest successfully in the stock market and often times lose a good percentage of their money. This makes saving for retirement especially difficult.

One way that many people have found to get around this problem is by joining an investment club where many individuals pool their money and make decisions jointly on what to invest in. There are two main problems with this… the first one is that many investment clubs are often closed and will not allow new members to join. The second problem is that you may not feel comfortable with the people running a particular club.

The solution to both of those problems is to simply form your own club and that is what many people do. Forming your own investment club is a lot easier than you may think, in fact you can do it with as few as 10 or 15 people or less.

There are some technical forms that have to be applied to make your investment club legitimate and legal. I suppose it’s okay to have a loose non-structured club, but if you’re going to do a thing, you may as well do it right so today I want to talk about how to form an investment club and the mechanics involved in doing so.

The first thing you need to decide is how to legally structure your club. You have several options, for instance… you could form a Corporation which is easier than many people think, you could form a limited liability company, or you could form a partnership.

For an investment club a partnership tends to be the more favorable structure because partners don’t pay tax on profits twice like shareholders of a Corporation do. The partnerships untaxed earnings simply flow through to the partners directly and are taxed only once at the individuals specific tax level.

Another benefit in a partnership structure is that losses are also passed on to partners who can then use those very losses to offset gains for tax purposes. If this confuses you then you may want to talk to an accountant or CPA.

Many states allow partnerships to form without complicated registration requirements. You’re still probably going to need to register the partnership name with the County Clerk and pay a very small fee, sometimes only $10 or $20. Go online and check your state’s specific registration requirements or check with an attorney. Many times the state’s department that you’ll want to check is the Secretary of State’s office for your specific state. You should be able to find information on forming a partnership online fairly easily.

You’ll also need a partnership agreement which you may need an attorney to draw up. Run to the library and look for a book on how to form a partnership and many of them will come with a generic partnership agreement that you can modify yourself without the use of an attorney.

At the first meeting of your investment club, the members should elect a presiding partner… this is merely the person in charge of running the meetings. You should also select a recording partner who will keep minutes of every meeting, which is just a written record of what occurred at each meeting. You should also select a financial partner who will be in charge of keeping records of receipts and placing buy and sell orders with the clubs stockbroker as well as prepare any statements for the members..

So there you have the basic mechanics involved in forming an investment club. It doesn’t have to be that much more difficult than what I just described.