Llc To Trade Father And My Money

K

KDUN02

I am wondering if it is possible/legal to set up a LLC/LP with my father where I can trade his and my money together. He would be classified as an unaccredited investor and would be paying me 1% plus 20% on gains. Has anyone done this or researched the legality of it. I will not do it if I have to get into any SEC registration.

I have been successfully trading on my own for year and am not doing this to make money - although I will take it. It will just be a small portion of his portfolio so I do not want to get involved if there will be alot of fees involved. My father would be a limited partner.

I have seen many threads on this subject in regards to large accounts/ investors - Hedge Funds, but nothing on small time LLC's.

After much research - I am not interested in IB friends and family accounts or prop firms. I will only do this if it is easy and legal through a LLC/LLP.

I would appreciate any input if some else is doing this or finding out if it is even possible.

Thanks!
Kyle
 
Quote from KDUN02:I am wondering if it is possible/legal to set up a LLC/LP with my father
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As you've described it, it is perfectly legal and an intelligent way to accomplish your stated goals (assuming the fees/costs for the LLC are justified in relationship to the amount of funds put to use trading)

If you want further clarification you can contact the SEC in Washington DC to hear it from the horse's mouth, so to speak.

If you type in "Why Form Your Own Entity" at Google you'll see a little more about this as well as additional benefits for the entity structure you are thinking about.
 
Quote from KDUN02:

I am wondering if it is possible/legal to set up a LLC/LP with my father where I can trade his and my money together. He would be classified as an unaccredited investor and would be paying me 1% plus 20% on gains. Has anyone done this or researched the legality of it. I will not do it if I have to get into any SEC registration.

I have been successfully trading on my own for year and am not doing this to make money - although I will take it. It will just be a small portion of his portfolio so I do not want to get involved if there will be alot of fees involved. My father would be a limited partner.

I have seen many threads on this subject in regards to large accounts/ investors - Hedge Funds, but nothing on small time LLC's.

After much research - I am not interested in IB friends and family accounts or prop firms. I will only do this if it is easy and legal through a LLC/LLP.

I would appreciate any input if some else is doing this or finding out if it is even possible.

Thanks!
Kyle
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even though you think its not what you want to do an ib fa account is perfect for this because there are no fees and everything is above board.
let me ask you a question. why do you think you need liability protection with your fathers money?
 
Why not just set up a company make him a shareholder and sell shares to him? Then its a private company and no one can say anything about who and what you trade with. Thats what I plan on doing.
 
Forget all that lol.. Just do a general partnership and have an agreement to pay you fees for managing the money. If it is just you two and your provate money combined, a GP is so simple and no need to go through all the LLC hoops or worry about SEC. If the money is small enough, you would fall under SEC and many state exemptions anyway.
 
Quote from optioncoach:Just do a general partnership and have an agreement to pay you fees for managing the money.
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While this could work, and does work fine for many people there are two items you may have overlooked.

If the agreement says that the child is paid a fee for managing the partnership's money, then the fee expense is passed thru on the Sch K-1 on line 13K and as such is limited in its tax benefit (see my earlier reply above).

Secondly, with a Family General Partnership, Father's money is totally at risk since all owners of the partnership are jointly and severally liable for debts and judgments. Using the LLC as KDUN02 researched could more likely protect the Father's capital should the child have an unforeseen event such as, G-d forbid, an automobile accident or divorce.
 
Quote from traderstatus:

While this could work, and does work fine for many people there are two items you may have overlooked.

If the agreement says that the child is paid a fee for managing the partnership's money, then the fee expense is passed thru on the Sch K-1 on line 13K and as such is limited in its tax benefit (see my earlier reply above).

Secondly, with a Family General Partnership, Father's money is totally at risk since all owners of the partnership are jointly and severally liable for debts and judgments. Using the LLC as KDUN02 researched could more likely protect the Father's capital should the child have an unforeseen event such as, G-d forbid, an automobile accident or divorce.
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Ditto. Personal opinion in this case is that creating an LP with the GP being an LLC is the better way to go. If you are successful, you'll likely have a few more people approaching you about trading for them, and the LP will provide a means for you to do that. At the same time, the GP carries all the liability, so you'll want to have the LLC as the GP to protect your personal assets.
 
Quote from optioncoach:

I am a lawyer and your LLC limited liability argument does not work in case of divorce or auto accident. AN LLC protects you from unlimited liability from people dealing with the LLC. It does not shield it from outside liability.

You see your ownership in an LLC is an asset. If you are sued for an auto accident or get divorced, your ownership in the LLC is an asset thrown into the mix and is not protected because it is an LLC. Remember that if you get a loan as a new LLC you pledge your ownership in the LLC as an asset. If you get divorced, GUESS WHAT! Your wife is entitled to a % of your assets which includes your ownership in the LLC. YOu have the limitation of liability going in the wrong direction.

An LLC works for a business, let's say a contractor who is putting in your sink. If he messes up royally and you sue him, his liability is limited. If he runs his car into someone on the road and gets sued for a boatload, the LLC is listed as an asset and is attachable.

Many people make this mistake about limited liability. LLCs protect the owners from liabilitiy from people doing business with the LLC. YOU personally have an asset in the ownership in the LLC and that is not shielded from 3rd party attachment.

So in your example, the LLC or partnership makes no difference for liability purposes.
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Quote from optioncoach:

I am a lawyer and your LLC limited liability argument does not work in case of divorce or auto accident. AN LLC protects you from unlimited liability from people dealing with the LLC. It does not shield it from outside liability.

You see your ownership in an LLC is an asset. If you are sued for an auto accident or get divorced, your ownership in the LLC is an asset thrown into the mix and is not protected because it is an LLC. An LLC works for a business, let's say a contractor who is putting in your sink. If he messes up royally and you sue him, his liability is limited. If he runs his car into someone on the road and gets sued for a boatload, the LLC is listed as an asset and is attachable.

Many people make this mistake about limited liability. LLCs protect the owners from liabilitiy from people doing business with the LLC. YOU personally have an asset in the ownership in the LLC and that is not shielded from 3rd party attachment.

So in your example, the LLC or partnership makes no difference for liability purposes.
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This is ture. That is a liability mistake that many people make. When referring to liability we need to make sure that we accknowledge that liability protection only extends to business activities.

Good point OC.:)

In any case, from the viewpoint of possible future expansion, what's you opinion?
 
Quote from optioncoach:

If the goal is to add more people down the road then the LLC or LP is the right format since you can simply add people as needed and then the limited liability shelters you from the limited partners and the LP makes sure the limited partners are restricted in their management roles.

If it is just father and son joining money a GP is a consideration. LLCs are easy to create of course but just wanted to let people know that if it is just to collect 2 sources of money together a GP is so much easier. And a GP and LLC work exactly the same for tax purposes.

Now for growing into a managed pool, the LP with an LLC as the GP is A OK
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