If you are interested in starting an investment club, the Division of Securities is unable to comment on your club’s particular circumstances and this information should not be taken as an opinion on whether the Wisconsin Uniform Securities Law, Wis. Stat. ch. 551
(ch. 551) applies to your situation. Please consult your own legal counsel for assistance in establishing an investment club that complies with the securities and business entity laws in Wisconsin.
This summary reviews only certain aspects of ch. 551
for starting and operating an investment club, and other laws may apply. This summary is not complete and should not be relied on for interpretation of any part of the securities law.
Is your investment club a “security”?
To determine if the provisions of ch. 551 apply to the offer and sale of ownership or investment interests in your club to persons in Wisconsin, it is necessary to determine whether the interests fall within the definition of “security” under Wis. Stat. s. 551.102(28). That determination depends on how the club is organized and managed.
If your club is formed as a general partnership, the interests in a general partnership would not normally be considered securities so long as the members participate equally in management decision-making. If it is determined the interests are not securities, then ch. 551
would not apply to them. However, whenever management of a general partnership is delegated to or vested in one or more managers, the partnership interests may be considered securities. Please note that the way a partnership operates, rather than its legal status, will determine whether the interests sold are securities. For instance, if you set up your club as a general partnership but one partner makes the essential managerial decisions, the interests sold will be treated as securities and ch. 551
will apply to the offers and sales.
If your club is formed by its members without specifying the form of the entity, the law will usually classify it as a general partnership.
If the club is set up as a limited partnership or corporation, the club’s limited partnership interests or shares of stock are securities and ch. 551
would be applicable. The interests may need to be registered with our office unless you identify an applicable exemption from registration. Generally, the smaller the club, the more likely you may qualify for an exemption from registration. For instance, if your club has its principal office in Wisconsin and no more than 25 security holders, the interests may be exempt from registration pursuant to Wis. Stat. s. 551.202(24)
, provided no commission or other compensation is paid or given to anyone (other than a securities broker-dealer or agent registered pursuant to ch. 551
), and no advertising is published, in connection with offering or selling the interests.
If the club is set up as a Wisconsin limited liability partnership (LLP) or limited liability company (LLC) and each membership interest in the club actively helps decide what investments to make, the interest would not be considered a security that falls within the definition of an “investment contract” under Wis. Stat. s. 551.102(28)(e)
. However, partners or members that vote or have the right to vote, or the right to information concerning the business affairs of the LLP or LLC, or the right to participate in management, does not solely establish that all partners or members are actively engaged in the management of the LLP or LLC. In addition, the interest in the club is not an “investment contract” if each holder of an interest is authorized under applicable law or under the partnership, operating, or other governing agreement to act for and bind the LLP or LLC and the total number of holders of all interests in the LLP or LLC does not exceed 15.
Are you filing any necessary business entity forms?
If your club is set up as a Wisconsin general partnership or limited liability partnership (Chapter 178), limited partnership (Chapter 179), corporation (Chapter 180) or limited liability company (Chapter 183), it would also need to comply with the applicable statutes.
Does someone need to register as an investment adviser or other financial professional?
Any person paid any kind of compensation that has sole or primary authority (instead of all the members) for providing investment advice or selecting investments for the club may fall within the definition of “investment adviser” and, if so, need to be registered under Wis. Stat. s. 551.403 and 551.404.
Any person who receives compensation for the offer or sale of your club’s membership interests, or for the actual purchases and sales of securities for your club, may fall within the definition of broker-dealer or agent and, if so, need to be registered under Wis. Stat. s. 551.401
Other considerations and resources:
The securities law’s anti-fraud provisions at Wis. Stat. s. 551.501 apply to all securities transactions in Wisconsin, whether or not you are required to register your club’s securities or financial professionals.
If any of your members are out-of-state, you should contact the securities regulators in those investors’ states. Here is a directory of securities regulators in other states
on the North American Securities Administrators Association (NASAA) website.
For interstate offers, you may also contact the U.S. Securities and Exchange Commission (SEC) to determine if your interests require registration with that agency. See the SEC website
for more information on investment clubs.
Phone: (608) 266-2139