Corp Structure - Can this be done?

Discussion in 'Professional Trading' started by UnderGround, Mar 14, 2006.

  1. Can anyone help me out? Can the following corporate structure be setup.

    Have Corporation A manage Corporation B (not sure on the business structure it could be any of the following – a corporation, LLC, trust, proprietary trading group, unincorporated business etc.)

    Corporation B would be a company that my friend’s family or a few capital investors could purchase a position within the business based on an offering memorandum so that everyone is treated equally (they would be issued positions and units not shares – they receive no voting rights what so ever). Each position purchased would equal a set number of units issued, after that each person could purchase additional units if desired for a set rate, and those units would just be added to there total purchase. And thus as the business grows there units increase in value based on the growth of the business. Each person could then exchange there units with the business for a cash value at a later date.

    I do not want this corporate structured as a hedge fund or a mutual fund, there are too many things one needs to do each year that costs way too much money to cover the cost. I want to create something private, almost like a traders syndicate. Can that be done? And if so who do I need to talk to?
  2. My trading mentor is working on something similar.

    He is Canadian, setting up a LP with him as the GP and each of his auto trading clients with having a corresponding share of the partnership based on what they put in the pool of money, which can change based on their percentage of pool changing. That is the short answer. You will have to get a lawyer familiar with trading or a CPA familar with trading laws.
  3. dandxg - Thats great I'm in Canada to - do you mind giving me the lawyers firms name - I would like to ask them a few questions about how they structured the LLC. I just don't want to step on any exchange commissions toes.
  4. I will ask my mentor if he doesn't mind giving it out, I don't know it off hand.

    I think Canadian legal system is similar to US, I am not sure though. The guy I used for my LLC in Colorado is Paul Mann CPA at He gives like a 1 hour free consulation with the hope you go through with it. It was approx $500 to inc. the LLC. Also Robert Green CPA in US is supposed to be good too. Do a google seach for him.
  5. I'm in Canada... and am GP of an LP for 10 years.

    A very important point:

    Make sure there are no "services" are provided for payment.
    If some entity is providing "management services" to another entity...
    Make sure all payment is in the form of "profit sharing"...
    That way you avoid the GST.

    This can be a big landmine if not structured properly...
    Like someday paying GST on 10 years of back income.


    :cool: :cool: :cool:
  6. dandxg - thanks for the link I will drop them an email to see what they have to say. Plus I hope your mentor will be willing to forward his firm which set up this corp LLC and managing corporation.

    RedManPlus - Your LLC does not pay your managing corporation a monthly management fee, a bonus fee or a fund maintenance fee (to cover the daily expense - data feed, computers, electricity, legal fees etc.) instead you take a payment in the form of profit sharing to cover the above expenses to avoid the GST? Correct.

    Plus if you do not mind can you also maybe direct me the the right firm to setup this corporation. The way I see it the thing would work like this, correct.

    Corp A (managing business - have myself appointed the GP of the LLC but work for the Corp A) -> manages -> the LLC.

    The LLC is a group of people's pooled money which is under management of Corp A. Corp A makes the trading decisions for the LLC. The people who invested within the LLC have no say how the LLC is run or what trading decisions Corp. A makes. This agreement will be outlined with an offering memorandum.

    Am I missing anything?
  7. In the States you can establish a LLC. You act as head of the LLC. Many states only require one person in order to establish a LLC, some states require at least 2 parties (just have to check where you are interested). Under the establishment of the LLC you are sheltered from liabilities incurred by/through the LLC.

    Then, after establishing your LLC, you set up a LLP. Under the organization of the LLP you can stipulate that the LLC is the proprietary partner that will oversee and manage the LLP. You capitalize the LLP and stipulate how many shares of the LLP are available (depending upon how much money you desire to raise). The share value is then kept track of and posted as per the LLP agreement (valued daily, weekly, monthly, etc., sent out in a statement, newsletter or website, etc..). You would also want to make sure any and all capital "lock up" periods are clearly defined in the LLP agreement as well. As you start to appeal to potential investors and they agree to the structure, you bring them into the LLP as a general partner and grant them stock as you see fit (based upon their initial investment of course). Then the LLP invests the assets as the managing partner sees fit. The profits and any taxation are then distributed amongst the partners in the LLP as is agreed.

    The importance in this structure is that the LLC manages the LLP and the liabilities of the LLP and LLC shelter you (unless there is negligence, fraud or corruption of some sort then the LLC and LLP structures would not shelter your liability). As long as all parties involved are informed of the structure and sign agreements to this, then this is a legally sound structure. Additional information such as signed risk evaluations and net worth acknowledgments are wise things to collect from any prospective partners as well (most brokerages do this in order to protect themselves).

    This is, of course, a very general outline of the structure. Most of this can easily be done by any motivated individual and researched on the net. The most important thing is where the LLC and LLP are established.
  8. RedManPlus - how did you classify yourself within the structure of the agreement so that if the security and exchange commission in (Canada) did not try to say you were giving "investment advise"? Thus wanting to make you structure things as a hedge fund or mutual fund?

    Algorithm - does the above apply also within the US to?