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Business structure for backing a trader?
- Thread starter sweetWhiteOnion
- Start date
Quote from HoundDogOne:
Not true.
A classic LP has STRICT divisions.
The General Partner(s) have ALL management authority and responsibility...
The Limited Partner(s) NONE... they can ONLY invest capital.
Every LP is ** custom created ** by a Law Firm.
Except for basic legal guidelines like the above...
The LP Agreement can include almost anything...
And be one paragraph or 1,000 pages.
My LP Agreement is about 35 pages.
I agree with you, what I'm saying is that you can have a partner that is not necessarily "active." The government can't dictate how much participation one parter has over another; that is up to the people that start the corporation or partnership.
Quote from matador04:
Do you have an LLC structure as the General Partner? Are there other entities involved?
thx
LP and LLC are 2 different structures.
An LP is the "old style" structure...
And probably more open-ended...
In terms of what you can agree to put into the Agreement...
But ALL authority is STRICTLY in the hands of the General Partner(s).
In retrospect...
Obviously I would have done things differently...
So the LP Agreement MUST be very carefully thought out.
A badly structured LP will lead to conflict...
Which will often eventually torpedo the enterprise.
So getting a good law firm is not enough...
The people setting this up must know what they are doing.
Buffett did not succeed because he had good lawyers.
Create LLC, structure a managed account. Write up an investment management agreement with investor on drawdown limits and payout with lawyer. Deposit funds. Trade. Split profit according to agreement.
Quote from sweetWhiteOnion:
Hi. I would like to know how arrangements for backing a trader are typically organized with respect to business structure (LLC, partnership, etc.). Basically, if person A is going to back person B by providing x dollars with the expectation of being repaid x + y dollars at the end of a certain period of time, how should such a relationship be structured? The current plan is that the arrangement would be discontinued if a drawdown of z percent or more would occur, which is the risk being taken on by the equity provider.
Thank you.
SWO
Quote from Tracy McGreedy:
Create LLC, structure a managed account. Write up an investment management agreement with investor on drawdown limits and payout with lawyer. Deposit funds. Trade. Split profit according to agreement.
Unless you plan on trading in your pajamas...
And running a business out of a shoebox forever...
Make sure...
That EVERYTHING agreed to is crystal clear...
Especially things like...
Authority, profit-sharing, who pays what expenses...
Who maintains control of "intellectual property".
Trust me on this...
When the money starts rolling in...
Your relatives and best friends will fight you for wealth and power.
The same way many families are lifelong power struggles...
Business partnerships ESPECIALLY are highly charged political entities.
That's what an IMA is for. I agree.. get everything written out with worst case scenario in mind.
Quote from HoundDogOne:
Unless you plan on trading in your pajamas...
And running a business out of a shoebox forever...
Make sure...
That EVERYTHING agreed to is crystal clear...
Especially things like...
Authority, profit-sharing, who pays what expenses...
Who maintains control of "intellectual property".
Trust me on this...
When the money starts rolling in...
Your relatives and best friends will fight you for wealth and power.
The same way many families are lifelong power struggles...
Business partnerships ESPECIALLY are highly charged political entities.
Quote from sweetWhiteOnion:
Hi. I would like to know how arrangements for backing a trader are typically organized with respect to business structure (LLC, partnership, etc.). Basically, if person A is going to back person B by providing x dollars with the expectation of being repaid x + y dollars at the end of a certain period of time, how should such a relationship be structured? The current plan is that the arrangement would be discontinued if a drawdown of z percent or more would occur, which is the risk being taken on by the equity provider.
Thank you.
SWO
I backed someone once and the arrangement was to take 50% of the profits in return for taking 100% of the downside risk. I also had a clause where the backing would be terminated if he lost 10%, which eventually he did.
As for the other details, it depends on your jurisdiction and you should be using an accountant & lawyer to draw up the document. Just keep it simple and cheap because 95% of the time the trader is going to blow up and your fees will simply add to your loss.
You don't need any of that stuff.
You can get membership to the exchanges, open an account at a clearing firm and you can open an account period.
You will out tax forms (like a w-2) and send it to the person you shared profits with.
End of story.
You can get membership to the exchanges, open an account at a clearing firm and you can open an account period.
You will out tax forms (like a w-2) and send it to the person you shared profits with.
End of story.
Quote from sweetWhiteOnion:
This would be strictly futures, no equities. I would prefer that the equity provider not be viewed as an "investor", but rather a partner/principal in the business.
Ultimately, input is needed from an accountant or attorney, but I'm just curious how these arrangements are typically structured.