How to Start an Investment Company

Making Preliminary Decisions

Choose the type of investment company. There are many types of companies that fall under the heading “investment company.” You should pinpoint what exactly you want to create. The most common are the following: Closed-end investment company. You issue shares in a one-time public offering. When investors want to sell, they can sell the shares on a secondary market (e.g., the stock exchange). Open-end investment company. Unlike a closed-end investment company, you'll continuously issue new shares in your company. Clients will buy shares from you and then sell them back to you.

Pick a business structure. Investment companies can be corporations, partnerships, or limited liability companies (LLCs). Each form carries its own risks and benefits, which you should think about carefully. Corporations are owned by shareholders and run by officers appointed by a board of directors. You form a corporation by filing articles of incorporation with the state. A corporation shields its owners from personal responsibility for business obligations, such as debts or lawsuits. Partnerships are owned by the partners, who agree to jointly run a business. Partnerships don't have to file paperwork with the state. However, partners are personally responsible for the partnership's obligations. In some jurisdictions, you can create a limited partnership. The general partner is personally liable for the company's obligations, but its limited partners are not. Limited liability companies are corporation-partnership hybrids. They also shield the owners (called members) from personal responsibility for business obligations. You will need your jurisdiction's permission to form an LLC.

Hire a lawyer. Many legal issues will arise, and you should get expert legal advice. Talk to small investment companies and ask if they would recommend their lawyer. (Large investment companies will have their own lawyer in-house). Call up the lawyer and schedule a consultation, where you can discuss your investment company. If you don't have any referrals, contact your local bar association. Ask for a referral to someone experienced with investment companies.

Choose a business name. Your name should stand out in the marketplace. It should also connect to your values and investing strategy. Good values to promote are stability, integrity, and balance. For example, “Atlas Investing” is effective. You should also check that a name hasn't already been chosen in your jurisdiction. There should be a business entities website you can search. In the U.S., look at your state's Secretary of State's website. You should also confirm no one has trademarked the name. In the U.S., you can search the federal trademark registry.

Read investment company business plans. Investment companies are so diverse that it is impossible to generalize what your goals should be. For example, some investment companies focus on certain communities, such as retirees. Other investment companies try to maximize the greatest return possible for their investors. Identify investment companies you want to model yourself after and try to find copies of their business plans. There are also generic plans online that you can read to get the ball rolling.

Draft your own business plan. The business plan will help you clarify what you hope to achieve with your investment company and how you intend to reach your goals. A business plan will typically contain the following information: Company summary. Describe the services you will offer and your business type. Identify the amount of capital you will have at the start and your total start-up expenses. Market analysis. Identify the other investment companies you will be competing with and analyze what they do well. Discuss how you will set yourself apart from the competition. Marketing plan. Identify your target consumer based on age, location, gender, education, income, etc. Discuss what promotional efforts you will undertake to reach your target market. Operations and management. Identify the members of management and discuss their experience and education. Financial information. Create projected cash flows, balance sheet, and business ratios. You should also forecast your sales.

Forming Your Business

File paperwork with your jurisdiction. If you form a corporation or LLC, you'll need to file Articles of Incorporation or Organization with your state's Secretary of State. Generally, there should be printed, fill-in-the-blank forms you can use. You'll need to provide basic information about your company, such as its principal place of business, registered agent, and the name of one or more directors or incorporators. You'll also need to pay a filing fee, which will vary depending on your jurisdiction. You might be able to register online, which can speed up the approval process.

Create an operating document. You'll need rules in place for running your investment company. You should find sample documents from other investment companies. These documents will explain who can make business decisions and how. Typically, you don't file these documents. Instead, you store them at your principal place of business. If you form a corporation, you'll need to draft bylaws. In your bylaws, you should discuss how people can be appointed as officers or board members. Also explain how shareholder or board of director meetings can be called. If you form a partnership, you'll need a partnership agreement. Your agreement should explain the ownership percentage and how profits and losses are allocated. You also want to clarify who can bind the partnership and what will happen if a partner dies. If you form a LLC, you'll need to draft an operating agreement. This document will be similar to a partnership agreement. Identify the owners and their percentage of ownership. Also divide profits and losses.

Acquire required licenses. Investment advisors typically need one or more licenses to practice in their jurisdictions. You should thoroughly research the requirements and give yourself enough time to pass the written exams. In the U.S., for example, licensed financial advisors have a Series 65 license. To obtain it, you'll need to pass a three-hour exam on basic securities laws and ethics. Once you pass, you'll be a licensed investment advisor in your state.

Register with the government if necessary. Talk to your lawyer about your registration requirements. In the United States, you'll need to register with your state and the federal government. You can find your state's securities regulator online. Learn about federal government registration by reading the Investment Company Registration and Regulation Package, which is available online.

Create an account to trade. You'll need this account to buy and sell stocks. You can get something simple to start, such as an E*Trade account. Open the account in your business name, not your personal name.

Obtain tax IDs to pay taxes in your jurisdiction. In the U.S., you'll need a Federal Employer Identification Number (FEIN), which you can get at the IRS website: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online. You'll also need to register for state and/or local taxes. Contact your state's Department of Revenue and your municipal government office.

Marketing Your Business

Target your expected client. Sophisticated clients will need a different approach from novice investors. For example, novice investors might be embarrassed by what they don't know and afraid to ask questions. This fear might prevent them from doing business with you. Your target market will also drive the media you choose. For example, if you want to reach established professionals, you might advertise in the business section of the newspaper. However, if you want to reach millennials, you should advertise online and use social media. Video is more effective at reaching millennials than text.

Brand your company. Your brand is your business identity. It is the collection of emotions or experiences your clients will associate with your business. Spend time coming up with a consistent branding strategy. Create a logo and tagline that convey your brand. For example, Charles Schwab's tagline “Talk to Chuck” personalized a giant company and made it friendly to investors. Brand consistently across all media. Your website, printed materials, and business cards should share the same look, color scheme, and feel.

Create a website. Today, all potential investors are web savvy. You'll need a web presence, if only so that interest clients can get a good overview of your company. Create a website that describes the background of everyone in your company and that aligns with your branding. Once you get underway, you can also include information about the performance of your funds. Potential clients might also be drawn to articles that explain investment concepts in a way that is easy for a lay person to understand. This is a good way to build trust. When you write a blurb, convey what your business does. For example, you should tell the audience what you will do for them if they work with you. Take it away from the traditional descriptive language that does not mean anything and make it impactful to the reader. Tell them what you do and why you do it. Let them know how you are qualified to help them.

Follow the laws that regulate advertising. The government will closely regulate how you offer your investment products. In the U.S., for example, you should follow requirements set by your state's regulatory agency and the Securities and Exchange Commission (SEC). Securities laws are meant to protect consumers by requiring transparency. If you violate these rules, your government regulator will sanction you. You also open yourself to lawsuits from unhappy investors. For these reasons, you should work closely with your attorney when drafting your offering documents.