LPs is how Buffett got started. Hire a lawyer to help you! Having a good lawyer around will provide a professional environment.
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.
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.
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.
Good info, guys. Couple issues: the LLC or LP may not pass the Howey investment contract test. The capital provider may be required to be an accredited investor and the trader may be required to hold series 63 license with state/s. I guess that's where the lawyer comes in...
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.