Have you ever wanted to invest with a partner, or with an investing club? Or maybe you have a bunch of family members that want to pool their money together to invest. One of the best ways to do this is by setting up an LLC for investing.
An LLC is a limited liability company, and it can be a vehicle for a lot of purposes. One of the more interesting uses of an LLC is to allow groups of people to pool their money together to invest. It can also be used to invest in other things, such as real estate.
Here's why and how you might want to consider setting up an LLC for investing.
Why Setup an LLC For Investing
The strength of using an LLC for investing comes from the LLC operating agreement. The LLC operating agreement describes what can and cannot be done in the LLC. As such, it works very well for setting up an investing vehicle for multiple people or parties.
For example, a common provision in the LLC operating agreement is how individuals can sell their shares in the company. Typically, when you setup an LLC for investing, you forbid other members from selling their shares in the LLC without other member's permission. This will prevent changes in the ownership structure without all members agreeing. Since many LLCs are setup for families, this keeps the ownership of the LLC in the family.
Another common provision is defining how the money in the LLC will be invested. Similar to a mutual fund prospectus or ETF prospectus, you can define how the LLC will invest in the operating agreement - maybe requiring at least 60% of the funds invested in stocks. Having a solidified plan and structure makes it easier to have consensus across all parties.
Finally, some operating agreements may require members to make regular contributions to the LLC. If you are setting up an LLC for an investment club, you may require that each member contribute $50 per month to the LLC. This keeps all club members vested in the club and the LLC.
Famous Family LLCs for Investing
You may not realize this, but many wealthy individuals use LLCs to invest. For example, Wal-Mart's largest shareholder is Walton Enterprises LLC. This is the LLC formed by the Walton family to control ownership of Wal-Mart. The Walton Enterprises LLC has 6 known members, the heirs to Sam Walton's empire. Combined, the Walton family is worth almost $150 billion. However, most of this wealth is tied up in the LLC. In turn, the LLC owns assets like Wal-Mart, and several other smaller companies.
Bill Gates is another famous individual that holds most of his wealth in an LLC. He owns Cascade Investment LLC, which controls his remaining stakes in Microsoft and other investments that he makes.
Where To Setup and Invest With An LLC
Anyone can setup an LLC for investing pretty easily. They key is to make sure that all members of the LLC agree on the operating agreement, which are the terms by which the LLC will operate.
If you want to setup an LLC for investing, I recommend Nolo. It's the company that I used to setup my LLC and I've been very happy with them. Their prices are reasonable, and their support is great. It will take you about an hour to setup your LLC for investing with Nolo. Then, Nolo will file your paperwork with your state, and you should be official in a few weeks (or months depending on your state).
Once you have your LLC paperwork, you need to open a brokerage account in the name of the LLC. I recommend using ETrade or Fidelity to open your LLC investing account. When you go to open an account through this link, you simply select "Other Account Type" and the "Limited Liability Company". They will then ask you for the information from your LLC operating agreement, and they will also want a copy of it when you're done applying.
This is also an account that you typically can't just open online, but you can get the investing account open very quickly once you send in your LLC operating agreement. I would estimate you would be good to go in about a week. When I opened our account at ETrade, it took about 2 hours to get the paperwork done, and the account was opened by the end of the week. We were also able to get a signup bonus for our initial deposit when we opened the account.
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Using An LLC For Real Estate Investments
One of the most common reasons to use an LLC for investing is to invest in real estate. An LLC will protect you from potential liabilities that arise, as well as provide a framework for dividing up the investment ownership of the property.
This can work really well if you plan on owning multiple properties, or if you have multiple investors in one property.
One of my favorite ways to get started with rental properties is through crowd funding. Similar to LendingClub, you can start investing in real estate for as little as $5,000 at platforms like RealtyShares (We offer our readers a $100 bonus when you make your first investment using promo code Partner100).
Another similar platform is FundRise. They only have a $500 minimum to get started and offer a variety of options we love as well! FundRise has really been a great performing passive income investment over the last year!
Both of these platforms allow you to use an LLC to invest, but you'll have to talk to their customer service teams to get started.
Do you use an LLC for investing? Have you considered opening an account with friends or family?