Writing a Contract to Manage Money

hey

if signing an Asset Mgmt Agreement is really the only thing i would need to do (which was my original thinking before everyone in this thread started suggesting LLC / LP / etc), can you think of how i might be able to buy something already created by someone else (ideally a lawyer)? of course, it's still some of the other posters are right about me needing to set up a LLC/LP but i'm really not sure what to think...

appreciate your thoughts
Adam
 
Quote from Trader01123:

SupremeTrader & OptionTrader

Really great insights. yes, i was looking to do situation #2 - but i had never thought of that scenario for getting sued. while i doubt there's any way my client would be able to know about how well my own trading account performed, she could possibly subpeona for it if she lost money herself (even if she was just searching for information). however, even if the scenario itself may not pan out, there are lots of issues in regards to how/when i make trades for her as opposed to when i make trades for other accounts. if i did hers first, i screw myself. if i did mine first, i'm asking for a lawsuit. so many conflicts of interest! i'm not sure if there's any easy way to do situation #2 without driving myself mad in addressing all the issues that could potentially come up. and then to put it into contract - it could take half the years off my life! this is a main reason i was looking to see if i could buy a contract from someone else (already made) and just adjust it myself if neccessary. just too difficult

Adam
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Adam:

I trade for myself and for others in an LLC. You are the one making it difficult. This is my suggestion.

1. Make her a Member of your LLC and open two Brokerage Accounts for your LLC in two Brokerage Houses. Use one Account for your daytrading and the second Account for the position or swing trading. In this second Account for swing trading, you should place your own capital with your Investor's. If you lose money in the position trades, both of you lose money and not she, the Investor alone. Simply spell out the details about the Intraday trading and Swing trading, and how profits or losses will be shared in the common Account.

2. Execute your daytrading in your LLC and then open a common Account for both of you....that is an account with both your names. You will not need a POA, since you are on the Account as the Executor of the trades. Make sure your money is in this common Account as your Investor's. You do not have to match her one on one. For example, if she invests $50,000, you can invest $25,000 and share the profits or losses accordingly, after taking out your expenses, maintenance and management fees which you can incorporate into your side of the profit.

You have option 1 or 2. So what 's your difficulty?
 
My difficulty is that i fear the unexpected and the burdensome. e.g. for these pooled accounts, 1099s/taxes could become an issue. if she was an LLC member, % ownership of LLC could fluctuate every time i was to withdraw a managment fee. let's say she wanted to withdraw funds - i would have to recalculate % ownership as well as potental benchmarks/etc. overall in both of your suggestions - even though i would potentially avoid a lawsuit via a pooled account, i see lots extra potental work. even though you make the pooled account sound simple (and it would be simple to follow your steps), i am nervous it may be the tip of the accounting iceberg i'd see within a year. obviously though, i don't know this to be true first-handed. i am only speculating on that...
 
Quote from Trader01123:

My difficulty is that i fear the unexpected and the burdensome. e.g. for these pooled accounts, 1099s/taxes could become an issue. if she was an LLC member, % ownership of LLC could fluctuate every time i was to withdraw a managment fee. let's say she wanted to withdraw funds - i would have to recalculate % ownership as well as potental benchmarks/etc. overall in both of your suggestions - even though i would potentially avoid a lawsuit via a pooled account, i see lots extra potental work. even though you make the pooled account sound simple (and it would be simple to follow your steps), i am nervous it may be the tip of the accounting iceberg i'd see within a year. obviously though, i don't know this to be true first-handed. i am only speculating on that...
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Ownership percentage has nothing to do with profit or loss sharing. Unless your LLC is a Corporate version, you pay taxes on your profit and she pays taxes on her profit. It is like a Partnership but with the Umbrella protection of a Corporation. It is not the LLC that pays taxes but each of the individual members paying their taxes separately. Let's say you make a profit of $60,000 after all the expense have been deducted (one of the main reasons for using an LLC), and your share of the profit is $40,000 and her share is $20,000. You pay your tax on the $40,000 in your individual tax return and she does likewise on the $20,000 in hers. How much more simpler do you want it to be?

There is no Accounting Mumbo Jumbo here. I've been doing this for 10 years.
 
point well taken about taxes - you are correct and i should have known that. however, there are still some issues which could complicate things in a pooled account within my LLC:

1) if she wanted to add/remove money from account (or if i did), % interests in that account (and in LLC) would have to be adjusted

2) if she is a member of my LLC, but i am have a 100% interest in my trading account within LLC, but we have a 50/50 or 70/30 split of interests in Position trading account, then technically, our % interests in the LLC itself are not easily definable. this is because if at start the value of the trading account is 500k and the value of the posiiton account is $1m (and we are 50/50 in that), well then i have 2/3 of interests in LLC and she has 1/3 interests in LLC. however, let's say the trading account doubles but the position trading account is flat - who has what % interest in LLC? for this reason, i think that to say that different members of an LLC only have interests in certain accounts w/in the LLC makes the entire membership/ownership in LLC questionable. it begs - why not just set up a separate LLC to begin with - which - as i mentioned earlier - seems overkill (but possibly the best idea) for the situation.
 
Quote from Trader01123:

point well taken about taxes - you are correct and i should have known that. however, there are still some issues which could complicate things in a pooled account within my LLC:

1) if she wanted to add/remove money from account (or if i did), % interests in that account (and in LLC) would have to be adjusted

2) if she is a member of my LLC, but i am have a 100% interest in my trading account within LLC, but we have a 50/50 or 70/30 split of interests in Position trading account, then technically, our % interests in the LLC itself are not easily definable. this is because if at start the value of the trading account is 500k and the value of the posiiton account is $1m (and we are 50/50 in that), well then i have 2/3 of interests in LLC and she has 1/3 interests in LLC. however, let's say the trading account doubles but the position trading account is flat - who has what % interest in LLC? for this reason, i think that to say that different members of an LLC only have interests in certain accounts w/in the LLC makes the entire membership/ownership in LLC questionable. it begs - why not just set up a separate LLC to begin with - which - as i mentioned earlier - seems overkill (but possibly the best idea) for the situation.
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Who told you that the percentage ownership of an LLC is based on capitalization? Let's assume, I am the Inventor of a patented product and you have the funds for capitalizing our business. We decide to form an LLC. Since I have the patented product and you have 100% of the capital, then according to you, the whole LLC belongs to you, right? That's your argument. Well, that is false.

You can withdraw whatever money you want and she can do the same. It does not affect the ownership percentage. As long as you remember to pay Uncle Sam his share, you are fine.

Put in your operating agreement for the LLC that her percentage ownership is 5% or even 2%. This means you own 95% or 98% of the LLC. This is a token percentage because she cannot be a member with 0% ownership. It doesn't make sense. Then state clearly in the same agreement the percentage of profit you will share in the common Account only (50/50 or 70/30). Indicate very clearly also that the Intraday Account belongs to you and you alone. This is why it is advisable to have your two LLC Accounts with two different Brokerage Houses. One for the Intraday and the other for the swing trading.

Just make sure that you have your own funds in the common Account. That's the main point.
 
well it's obvious you know much more about this than me. thank you very much for your help. i will look into this all as you suggested and i'm sure your advice will prove quite valuable. thank you so much for the advice

adam
 
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