My friends and I want to start investing. Most of us are investing novices but we trust 2 people out of the group to make sound decisions. Can we start a company where we all throw in our money ($5K each) and let the experienced folks take care of the investing? Does that save us taxes if we are in it for the long term?


As for the letting the "wise" people only make the decisions, I guess that would be a bit odd in the long run. Especially when you get more experienced or when you don't agree with their decision. What you could do, is make an agreement that always 3/4 (+/-) of the partners must agree with an investment. This promotes your involvement in the investments and it will also make the debate about where to invest more alive, fun and educational).

As for the taxes I can't give you any good advice as I don't know how tax / business stuff works in the US. Here in The Netherlands we have several business forms that each have their own tax savings. The savings mostly depend on the amount of money that is involved. Some forms are better for small earnings (80k or less), other forms only get interesting with large amounts of money (100k or more). Apart from the tax savings, there could also be some legal / technical reasons to choose a specific form. Again, I don't know the situation in your country, so maybe some other folks can help.

A final tip if your also doing this for fun, try to use this investment company to learn from. This might come in handy later.


+1 for noting that you are in it for the long haul. I also think this is a great project and activity to do with friends.

Setting up and start-up investment company could be done as a simple LLC.

The decision making process can be decided among the members -- if you want to defer to the others then so be it. Make it flexible so that you can change your mind in the future.

If this is not intended to be a source of revenue or income for you (note your "in it for the long haul") One way of sourcing the capital and managing the resulting taxes you might want to consider is setting up a self-directed retirement account and making the investment from there. proceeds as you and your friends choose to take them would flow back into the retirement account.

As with most investment and tax related questions we should all take the little extra time and money to follow up on internet-based advice with your own lawyer, investment adviser and accountant. These licensed individuals when under contract assume a degree of responsibility for their answer which is not available online. :)

  • Thanks for the answer. Yes, we would want to be flexible in how we manage the investments and of course, capital contributors can vote down any particular investment. This is most certainly not intended to supplement our income .This is money that we might normally invest in our own 401Ks. At the very least, we think it will help us learn more about the markets and give us some experience into starting up a business. I should have also clarified the reason we want to do this as a company is that we are friends from Asia and it's much easier for companies to repatriate money than for people.
    – SKS
    Jul 8 '11 at 21:42

Taxes are the least of your concerns.

Your friends need licenses. Although this COULD be avoided entirely with certain craftily worded disclaimers and exemptions and the WAY that money is given to them.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy