myICLUB Blog

Dear Doug:

Is there a recommended practical or legal limit for the number of members in an investment club?

- Claudia R.

Dear Claudia:

You and your fellow investment club members get to set the maximum number of people who can get be in your club.

The maximum allowable number of members should be established in your partnership agreement and/or bylaws. It is perhaps better to initially allow a higher number than you actually expect to be the optimal number of members for a successful club operation so that your club can welcome an ideal candidate if they show up after your club reaches its membership limit.

From a legal perspective, according to the Securities and Exchange Commission one of the conditions that determines if an investment club must register as an investment company is if it has more than 100 members. There are other conditions that may qualify an investment club as a "private investment company," so a review of the SEC's is important if a club has more than 100 members.

From a practical perspective, an investment club of 40 to 100 members would be quite unwieldy -- if the club is committed to sharing the work of finding and studying companies and making investment decisions as a group (as opposed to a "club" that is merely following the recommendations of a single financial advisor).

The optimal size of a traditional investment club is generally around 10-15 partners. This size of group allows for effective sharing of the work involved in finding stocks and managing a portfolio, while keeping meetings efficient. Many clubs operate well with as many as 30 partners as long as they are well-organized in their procedures.

Some clubs operate successfully with as few as four or five members, though this requires a determined commitment from each of the members in order to carry out the work involved in building and managing a portfolio. Existing clubs that experience a departure of members may see their roster drop to a handful of members, and these clubs may well continue to operate with a reduced number of partners indefinitely, even if they are not able to recruit a great number of new members.

The bottom line is that your club can set its own membership limits. As long as you don't exceed 100 members, and your club can operate effectively and efficiently, your path to investing success will be clear before you.

- DOUG

Doug Gerlach is President of ICLUBcentral Inc. and its resident Investment Club Expert. Doug is the author of six books (including Investment Clubs for Dummies), and has helped tens of thousands of clubs and their members to become smarter investors using sound, long-term stock investing strategies and common-sense guidelines for club operations. Got a question about investment clubs? Ask Doug!

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