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This is an extension/more detailed question I asked a while ago: Legal documents required for managing an investment portfolio among friends?

The main question here is do I need to create an LLC to go through with this? Or can I just make a firm name, create a website, make a disclosure form and partnership agreement and start investing?

Details: I understand that I am basically going to be a CPO = for some friends and family - initially I will be managing a pool smaller than 15 people, and less than 400K USD which will make me exempt from NFA registration, also I will be the sole manager of this pool of funds - we will only be trading the Forex market. According to the SEC since this is less than 25mil USD I will be ineligible/exempt to register with them to.

I am filling out their exemption form here - https://www.nfa.futures.org/ExemptionsNonReg/ and it ask if I am a sole proprietor or a firm, would it be appropriate to list myself as a firm? Either way during registration you have to put in a name for the firm field. My question is does the firm I am going to create have to be LLC, etc, or can I just put in a name of what I want my firm to be called, and not have to do any legal paper work outside of the following:

  1. The rules listed here - http://www.cftc.gov/IndustryOversight/Intermediaries/CPOs/index.htm
  2. And an Investment club partnership agreement

And then I can begin to pool their money and beginning investing. Does this sound like the appropriate way to go about doing this?

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  • Last I checked, trading Forex was not 'investing.' – JTP - Apologise to Monica♦ Jul 8 '12 at 0:27
  • Interesting, unfortunately I don't know all the exact definition of terms when it comes to legal financial activities. But if what I am doing is not going to be investing but managing peoples money to generate a profit would be the correct term? And then would I need to worry about anything except making sure the members sign a legal agreement? – eWizardII Jul 8 '12 at 0:42
  • Forex trading is speculation, with odds as bad as roulette but not as good as blackjack. Have you any experience? – JTP - Apologise to Monica♦ Jul 8 '12 at 1:18
  • Yes I have had a year of experience with Forex trading – eWizardII Jul 8 '12 at 2:37
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I think there are two options:

  1. You invest for very close friends, who trust you completely.
    In this case, I don't see why you need legal formalities. Just take their money, invest, and return the profits (or losses) to them. They'll know that you invest it as well as you can (rather than spend it on your dream vacation), simply because they trust you.
    And in case they never get to see most of their money back - they'll know that you've tried your best, and won't be upset with you.

  2. You invest for people who trust you, but not 100%.
    In this case, don't take their money.
    If you lose (and in Forex, you most likely will) then you'll lose not only money, but also your friends.
    Even if the legal documents would prove that you were honset, and that they knew what they're getting into, they'll still be mad at you.

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    I think you still should have some legal formalities setup even with 100% trust, you could for example die and if you have no records of what is their money and what's yours it will prove to be large headache to sort out the estate. – psatek Jul 10 '12 at 11:22
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    @psatek, you need good records, so it's possible to KNOW how much everyone should get. Between people who trust each other, there's no need to PROVE it. – ugoren Jul 10 '12 at 12:52
  • My point is even if there is trust if the person managing the money dies, it will prove very hard for people to get their money back, and could be very time consuming and expensive. – psatek Jul 11 '12 at 12:39
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    if you take step "1". don't you end up paying all the taxes on the profit? – Vitalik Nov 23 '12 at 17:44

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