Legal Structure
Investment clubs are generally formed as general partnerships, but could also be formed as limited liability companies or limited liability partnerships (in states that allow them). While an investment club could incorporate, the double tax treatment on corporate distributions makes the corporate structure less desirable than a partnership. Typically, a general partnership does not generate any tax liability on its own; instead, any tax liability is passed through to members each year.
In order to understand the legal structure that an investment club should choose, the club should first understand its club type, which according to the cited reference could be a small local club, large local club, small internet club, or large internet club. Each of the different club types will have different legal requirements as well as different reporting requirement to the SEC.
Read more about this topic: Investment Club
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