Common investment vehicles include, but are not limited to:
- Limited Company
- Investment Club
For help on setting up an LLP or Limited Company, you can look at this page on the UK Government Services and information site.
Before deciding which vehicle you are going to use, make sure you consider the following:
Name of the investment vehicle
When choosing a name, ensure that any potential choice is thoroughly researched. Having to change the name at a later stage will involve unnecessary additional costs and time.
As a start, look at the following:
- Search for the name on Companies House (for the UK) or the equivalent in another country.
- Google the name and see if any companies show. Be sure to try different derivations too. For example ‘Ltd’ instead of ‘Limited’ or if you are considering a name like ‘ABC Investments Ltd’, try search for ‘ABC Company’ or ‘ABC LLP’ etc.
- Check GoDaddy or another domain site. There might not be a company set up, but there could be a site registered with that name.
- Look at the guidance on this page on the UK Government Services and Information site.
Try to also avoid names that you may not want on the front of a building one day. A name might sound funny or clever now, but you should be looking at this as a successful long term venture. Potential members might be put off by certain names in the future.
Consider purchasing the domain name now too. These are relatively inexpensive and you want to avoid the situation where someone else buys and you then need to buy off them at a premium in the future.
Your investment club will need to have a bank account. Members should deposit their monthly subscriptions there and monthly expenses should be paid from this. Any investments will be paid form this and any proceeds from sales or dividends should be deposited in this account before being distributed.
Check that you will be able to set up the bank account in the Investment Vehicle’s name and the steps and requirements to do so.
Confirm with the bank which members will need to set this up. Banking regulations might require all of the members to present proof of ID and address, even if they will not be involved in the banking or will not have access to the account. It is worth noting that credit checks might also be run on members.
Discuss who will need to manage the account and if there is a limit on the number of members that can do so? Regulations might not allow more than 2 members to have access to the online account, so you will need to delegate members for this. Contact the bank you intend to use and find this out before your meeting to avoid delays.
Banks might also want to see the signed rules for your club before they will open an account, so make sure these have been finalised before applying to avoid possible delays.
The Investment Vehicle you choose might have very different tax consequences for the members. Consider the following when choosing:
- does the vehicle pay tax initially or is this taxed in the members hands immediately?
- what are the taxes on distributions to members?
- do gains need to be distributed or can they be reinvested?
- do you want to utilise members’ personal allowances, such as Dividend and Capital Gains?
- what regulatory requirements exist for each type of vehicle and what documentation needs to be submitted to the relevant tax body?
- who is responsible for declaring dividends and capital gains or losses made to the relevant tax body?
Make sure you research thoroughly and depending on the level of tax knowledge in the group, it might be worth getting professional advice.
If you have chosen an investment club as your investment vehicle, the Treasurer will need to inform HMRC of the Club’s existence. They will also need to provide a written statement of the gains and losses to each member at the end of each tax year. You can find some guidance on the UK Government and Services site.
Trading accounts and Stock Brokers
Agree as a club, how you want to manage the stocks you invest in and which stock broker you will use.
When deciding on a broker, consider the following:
- Will you use a full-service broker or an execution only broker? The former will provide advice, whereas the latter simply executes the trades.
- Will the broker let you invest using the investment vehicle you have chosen? For instance, some brokers have specific accounts for investment clubs.
- Is there a limit to the number of members on the account?
- If the account is online who will have access to this and is there a limited number that are able to access?
- What documentation is needed to set up the account?
- What are the total costs involved (i.e. not just trading costs)? Evaluate different options, by estimating the costs for each. You can calculate this using the frequency of investments and estimated investment amounts that you have agreed on.
Some examples of accounts and fees:
Other Registrations for your club
It is not compulsory, but you might want to list your investment club on Proshare. They are a National Register of Investment Clubs. Registering for free will enable you to use their online portfolio tools, company research facility and club library. You can also purchase a manual from them for further guidance.
For additional help with setting up your club, try BetterInvesting. Becoming a member will provide you with support and education, as well as giving you access to online tools and other resources.
You should also see whether you need to register with the SEC.