Whilst love of money maybe the root of all evil, an investment club agreement can go a very long way to eliminating many of the problems that invariably arise whenever money, and the amounts people are entitled to, rear their ugly head. It is simply remarkable (and tragic as well) how quickly a once steadfast and meaningful relationship can degenerate and curdle as a direct result of a dispute over money whether this is due to a debt, or entitlement. Throw money into any group dynamic, and watch how certain people will try their level best to assert some form of dominance over the proceedings as well as ensuring that they secure the lion’s share of the loot for themselves.
The purpose of a investment club agreement is a vital one in that it brings order and structure as well as providing an arbitrary and objective point of reference which can be relied upon in all times of difficulty. The various roles, responsibilities and rights of all of the members of the club should be clearly expressed within the agreement, and it is imperative that not only do all the members understand the terms and effects of each, but agree fully to them.
However, these agreements are not merely a convenient scrap of paper which simply act as the symbol of the will of the members, but are in effect, documents with legally enforceable effects, and thus they also go a long way to providing actual checks and balances. For example, the last thing that anyone wants is for a higher ranking member to alienate the rest of the members and profit from that exclusion, or to be able to embezzle the funds and then bar the others from pursuing a remedy.
Whilst it is entirely possible to draft your own investment club agreement, it is strongly advised that you rely upon the assistance of an attorney to draft the document, preferably one who has extensive experience in tax law. This will ensure that not only does the club meet all of its legal debts in a legal and timely manner, but that the agreement is drafted in such a way so as to be tax efficient as well. Be very wary about using templates taken from the internet, the omission of a single clause can lead to major problems further down the line!
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