Put a Legal Structure in Place

You’ve now got your club registered with BetterInvesting, your club members are BetterInvesting members, you’ve got a club name and you’ve got some leaders.

That’s great. Now you need to establish yourselves in the eyes of the government. To determine which type of legal “business entity” is best for you, carefully review the upside and downside of each one. Here's a description of the various types of business entities.

General Partnerships are preferred by most clubs since they allow the taxes to pass through to partner personal tax returns, and therefore, have minimal costs and minimal paperwork. General Partnerships are the least costly business structure.

The Partnership Agreement

New investment clubs that join BetterInvesting typically adopt and use the General Partnership Agreement developed by the Mutual Investment Club of Detroit – one of the organization’s founding clubs. A copy of that clubs partnership agreement can be found here. BetterInvesting suggests you review this agreement and use it to develop the partnership agreement for your club. Remember, your club can modify the agreement at any time in the future and should not let developing the agreement become a barrier to moving forward.

Registration Requirements

For a general partnership, file a “Certificate of Conducting Business as Partners” form known as a “Doing Business As (DBA)” with the county or state. Registration requirements vary from state to state and for that matter, county to county. BetterInvesting encourages all clubs during formation to determine their registration requirements with local authorities. Have your club secretary or treasurer contact the Secretary of State’s office or licensing board, as well as the office of your local county clerk.

Federal Tax ID Number

Your Employer Identification Number (EIN) is your federal tax ID. An (EIN) is required for your partnership tax returns, and also by the bank and brokerage firm in order to open an account. You can apply for an EIN online at https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online. Once you complete the online process you will be provided an EIN that you can download, save and print.

If you'd rather go the pencil and paper route, you'll need an I.R.S. Form SS-4. You can get a copy at any library as most have an I.R.S. forms book, or you can copy the form from the IRS Website at www.irs.gov. After you have filled out the form, you need to submit it to the IRS per the instructions on the form. After you submit the form you will receive your Employer Identification Number (EIN) in about four weeks. If you need the EIN sooner to open a brokerage or bank account, you can call the Tele-EIN phone number shown on the SS-4 instructions.