Also not true. You can accept up to 35 non-accredited investors but you can't charge them a performance fee. However, if you are a non-registered operation you can charge them a performance fee. Google CFTC rule 4.7, and 4.13. There are others but I can't recall them off the top of my head. Just read all the rules that begin with a 4. Disclaimer: I'm not a lawyer.
One more thing. If you are a non-registered operation you have to register that exemption with the CFTC. Pretty funny huh?
No, what I said is completely true. What I said is if you take non-accredited investors, you're a lawsuit waiting to happen. Any lawyer will advise you to avoid them like the plague unless they're close family. The lawyer will also tell you to avoid lawyers in your fund!
In the very likely scenario this account goes underwater (Risk of Ruin is nearly 100% for everyone, given enough time) and given you are leveraged trading... Everyone making profits thinks they are clever until their ship hits the North Atlantic iceberg... Is this person going to expect you to make up the deficit in case of a disruptive market event and you owe the broker money?
Can't you just have them open their own account and give you LPA? You never touch the money and taxes are their concern. You just have to rely on the honestly that the compensation agreement worked out is followed. No?
This is by far the best arrangement. I like it because all of the paperwork is done by the IB and the client has to pay you based on your written agreement with them. It also allows you to avoid ever touching the money or being responsible for it. Just split the profits down the middle. if you make the client $$$ then YOU make $$$. if not then you don't eat but all fiscal liability as far as the burden of actually handling the money has been shifted to the IB.
Only one small problem with that. The state and the SEC may view you as an "Investment Adviser" and require you to register as one with the SEC and the state. You want to check into that before you set up a private arrangement. Enough government intrusion into your private arrangements for ya'? It's unbelievable. Also, for the guy who said taxes will be their problem under this arrangement... that's true, but it's also true if you form a partnership. The IRS regards partnerships as "disregarded entities" for the purposes of taxation and your pay taxes at the individual level. So, your taxation will not change. There's lots of advice here and a few ways you can structure this. But, I strongly advise you to seek legal counsel before you enter any arrangement. First of all, a competent lawyer in this field will be able to tell you which arrangement will likely work best for you and most importantly, help you avoid legal and regulatory pitfalls (of which there seems to be no limit). When you're trading your own dosh, it's very simple. When you start accepting OPM, it gets a whole lot more tricky.