Because we make money, we must operate as a business and file tax returns. The national organization that promotes investment clubs, Better Investing, recommends forming a General Partnership, which is what we have done. Our Partnership Agreement is almost identical to Better Investing's sample agreement. It specifies our name and purpose, and how member accounts are valued. It also specifies joining, voting, and withdrawal requirements. We've amended the agreement twice. The second amendment repeals and replaces the first. It also disallows Trusts and eliminates an outdated withdrawal penalty. These documents are legally binding and the Partnership Agreement and Amendment 2 must be signed by all members.
Our Operating Procedures define the club's management structure, procedures and processes. The duties and term of our officers are listed along with policies for visitors, guests, and new members. This document also specifies the minimum monthly dues and penalty amounts for late payments.
Each year the club files tax forms at the federal and state levels. At the same time members receive K-1 forms that detail their share of income and expenses. K-1's are used by members when they file personal taxes.
We use accounting software that's designed specifically for investment clubs and each year we purchase the optional tax printer. These products greatly reduce the effort and knowledge needed to maintain our books and file taxes, and are well worth the yearly $110 cost.