Investment Club Liability
Margaret Eskew writes.......
Given the litigious nature of our society, what vehicle can an investment club use to protect individual members from being sued for the debts of other members of the group?  Is a limited partnership or an LLC the safer vehicle?
No argument about the litigious nature of our society, but I am not convinced that a LLC or LLP is necessary or even desirable.
First of all, there is a common misconception that one partner will be liable for debts of other members not related to the investment club. This is simply not true. As a member of an investment club, I can be held liable for all the debts of the club under certain circumstances, but I am not liable for non investment club related debts of my partners. Even if I am found liable for investment club type of liability,  I have recourse against the other members for their fair share.
LLCs and LLPs probably will be subject to annual state fees, and, thus, in my mind, are just not worth setting up.
Some lawyers, and, alas, some accountants not familiar with investment clubs recommend avoiding the general partnership entity. However, lawyers with whom I have worked who are familiar with investment clubs continue to recommend the general partnership form of business. One of these was quoted as saying.........
All that said, remember that the plain vanilla general partnership works just fine for most clubs. The official guide says that NAIC is not aware of any partner being sued for a club liability nor has there been any comment on this list that I am aware of suggesting that any club member has faced personal liability

Another, who lives in a state that has a very small, one-time fee for LLPs, said that it is almost a no brainer to organize as an LLP in that situation, but admits that his club still operates as a general partnership.
Conclusion: If the state fees involved are not too burdensome, there is nothing wrong with organizing as a LLC or LLP. However, there is no pressing need to do so.
Thanks for using bivio and for submitting a very interesting question that has interest for many clubs.

Rip West
Ridgway, CO