All I want to do is establish a fund and invest my own money. It won't be open to other investors. I want to develop a track record with my own funds, but I want a fund to hold my liscenses as well. Does anyone know where I would start? Can any one share any idea on how to do that? Thanks.
The moment you formed the LLC and began trading in it, you are subject to the 15% self employment tax, period. The LLC is a tax conduit, pays zero tax, allocates to members based on the partnership democracy, commonly known as a partnership agreement. Incubator hedge fund? Your trading an account, get your record audited after a period of time, forget the buzz words. A hedge fund is a legal structure, not an asset class. You cannot 'hold' you licenses in a fund. You would need to form a b/d, and that is entirely a different matter. If you do not intend, and trust me you wont gather any significant assets from anyone remotely familiar with professional asset allocation; with a fund that had zero legal and tax counsel at formation, that is a massive RED FLAG in the due diligence process. Your dead on that count before the battle began. If its to trade your own account, then trade your own account. Get it audited, avoid the self employment tax. In CA the LLC tax is $900 annually. The 900 hundred bones can be deducted 100% in the year paid. Running a fund is a business in and of its self, not every profitable trader with a verifiable track record can make a go of it, its a path wrought with pitfalls. To consider doing it without proper legal/tax counsel is irresponsible,especially to future members if all goes well with your strategy. You couldnt launch a newspaper stand without an investment of 5-8K, launching a fund on the cheap is a poor risk management 'trade', your first out of the gate. Trust me, if you tap out an investor, they wont hesitate a minute to spend 5-8k on a hack attorney that will drag you thru hell and back. All formative costs are deductible over 36 months, so you spread the 15-20K over three years and lower the expense ratio to the initial investors.
""The moment you formed the LLC and began trading in it, you are subject to the 15% self employment tax, period."" Please clarify, because I thought that profits from trading activities are not subject to self-employment tax. Is the difference because of the LLC structure? (According to my research, a LLC with one employee, is taxed as a sole proprietor business.)
You should always consult an attorney before establishing an incubator hedge fund as you may be unknowingly violating state or federal securities laws. For instances, taking fees (even in an incubator fund) would require the manager to be registered as an investment advisor in many states including California, Texas and Washington.
What about "friends and family only"? Isn't there some get out clause if you only manage upto 15 peoples accounts?
what about forex? Second the above question. But you can't solicit funds? OK......so you get them to ask you... Basically if you keep it below 15 you do not have to be registered? I might do this.....target rich "friends" only.
Easiest way is to target rich friends/family and treat them well (perform well too), and you will get more money then what you know to do with.