Top Three steps to Starting An Investment Club

So, we’ve piqued your interest and you’d like to get the skinny on what it takes to form and operate an investment club. There is indeed some set-up involved to get your club off the ground, but if you follow these easy steps, your club will be off and running in no time!

Step #1: Become a legal partnership

You already know that an investment club is a social outlet, a place to learn more about investing in the stock market, and an opportunity to start investing your money on a regular basis. It’s also a legal entity. Most clubs form as a general partnership. Your club will need an Employee Identification Number (EIN). You can obtain one by filling out form SS-4 at the IRS web site.

Your club will also need a partnership agreement. A partnership agreement spells out the details of how the club will operate, from the official name of the club to the date it was formed, how the club will keep track of its profits and losses, and details of the club’s accounting. Check out a sample partnership agreement.

It’s not required, but, in addition to the partnership agreement, some clubs decide to establish bylaws. Bylaws are simply the working rules of the club. For example, your club may decide to include in its bylaws the day of the month you’ll meet or the maximum number of members the club will allow.

Step #2: Set up the club books

Now for the financial mumbo-jumbo (you knew this was coming). A club, as we’ve mentioned, is a lot like a miniature mutual fund. Club members contribute money every so often, and may eventually withdraw money once the club portfolio gets large enough. Club accounting is serious business. How, for instance, do you determine how much a member's share is worth, and how do you determine capital gains for each member? What happens if someone pays late, or skips a deposit? And though the partnership itself does not have to pay taxes, it does need to file a partnership return with the IRS each year. Each year, also, the individual partners must pay taxes on their share of the capital gains, dividends, and income from the club. Yes, club accounting can be messy.

But don’t despair. Luckily, software products can do pretty much everything for you. can print up-to-date reports of club holdings, member ownership, capital gains, graphs of club performance, and can even generate required Federal and State Tax forms. also includes a private and secure club web site just for your club, with club message boards, a calendar, and a place to share files.

For more information about these products, continue with this tutorial or jump to the products and services page.

Step #3: Open an investment club account

In order to be a fully functioning investment club, you will need to engage the services of a broker. When it comes to finding the right broker for your club, there are lots of options. A full-service broker will guide your club and often provide research on the stocks the club is studying as well as pay a visit and offer advice at the occasional meeting. A discount broker won’t offer advice on what your club should buy or sell and you’ll have to do your own research, but hey, that’s part of the meat and potatoes of an investment club, anyway. Many clubs choose to go the discount broker route, and with the ease and number of discount online brokers available, conduct all of their transactions via the Internet.

As you’re mulling over these different options, you might consider asking one or two of your club members to research the options and present them to the club. The club can then make the decision by majority vote.