Running your own fund - FSA Regulation

[DaxTrader]

I looked into this a few years ago, and concluded as wysinawyg says that setting up a company was the best route.

Investment clubs are fine, but you are not allowed to be paid for your services.

The other way to do it is what Rezo does - see "January 2004"forex thread, but he may be registered.

Have heard of the "private Unit Trust" which is used by wealthy families - advantages being that gains from stocks sold aren't taxed until units sold. Believe they are expensive to set up, and not sure whether you can trade the full range of instruments.

 

[MCGF]

Thanks i can read, i did realise that was the max punishment but u were using that as a reason for not doing it how u wanted to

I think u very warm to the ideal solution but just missed out one small detail

Surely the best way is to set up a company, distribute the shares out as per amount put in, PAY YOURSELF A WAGE from the company because u are putting in most effort and pay the profits out in dividends-problem solved surely?

 

[MCGF]

Or initially distribute more shares to yourself?

 

[jls483]

Thanks to all, even MCGF, it does sound as if the corporate solution is the best so far. The only major downside I have discovered so far is that corporation tax for such companies is 30% rather than the usual 20%

John.

 

[jls483]

OK - here is another question - sort of related. If I form a company and the company places a bet either on the horses or a spreadbet - are the profits tax free or will they still be liable to corporation tax? Would any spreadbet companies open a corporate account?

If the company made all of it is profits out of gambling (and they were all tax free) presumably the dividends would still have a tax credit for the shareholders?

Thanks,

John.

 

[darrenf]

Would a director of a ltd co be able to legally use company funds to gamble? Could be another sure fire way of getting carted off to the slammer.

 

[jls483]

Obviously it would be with the shareholders blessing

 

[darrenf]

I still think there could be something lurking in directors duties and gambling with company funds.

Don't know for definite. just a hunch.

 

[Scripophilist]

Thanks to wysinawyg for his clarity on this thread. The shareholder options seems most sensible.

I don't believe there is any specific rule about gambling with funds. It could be defined as a hedging strategy but would certainly be seen as unusual unless you apply for a betting license etc. etc.

You could always loan money from the company to yourself and then repay it again and redistribute the proceeds as a gift or something?

 

[jls483]

A small request before I put my next question . What I am about to ask might seem a little odd and from experience I expect one or two might be tempted to ask why on earth I want to work like that - but if you could just humour me as a bit of a nutter and just answer the theoretical question - I would be most grateful.
Thanks.

BTW If you are not interested in companies, dividends and running funds - now might be a good time to leave the thread .

Ok - let's imagine I've created my new company. I'm trading the FTSE futures using the companies IB account. I've got a strategy (a little unconventional) that sets the base price of my share as:
(5000-ftse)^2 / 1,000,000 e.g. if the ftse is at 4500 then the share is worth 500^2/1000000 = -.25 and if the ftse is at 4000 it is worth -1.00. Each share pays out a dividend of 3p a month.

I need to create a system where my mates can decide how much they want to pay for each share based on how low they think the FTSE might fall. The higher they assume, then the less they need to pay for each share and the better their returns will be.

If for example the FTSE is at 5000 and has a value of zero and they pay £1 a share then they can afford to let the FTSE fall to 4000. If it does fall to 4000 then they can either see their shares liquidated or they can pump in more cash.

That's the scenario I am trying to create - how I do it - I don't mind.

Here is the best idea I have had so far:

I split the shares (on paper - not with companies house) into various flavours each share covers a fall to a certain value e.g. to 90% of 5000, 80%, 70% and so on. The cost of each share is basically equal to:

the price of a fall from 5000 to the bust value plus
the cost of the current fall from 5000 plus
any profits that have built up in the fund and will be paid out as a dividend at the end of the month

So the base price of the 90% fund is 25p. The fund will be worth 25p-0p=25p when the FTSE is at 5000 and 25p-25p=0p at 4500.

The base price of the 80% fund is £1 and the fund will be worth £1-0=£1 at 5000, £1-25p=75p at 4500 and £1-£1=0p at 4000.

The cost of upgrading between the fund flavours is just the difference in the base price of the units, which in the case of the 90% and 80% funds is 75p.

It is a system that would work on paper - I'm just not sure if companies house and the inland revenue are going to be happy that shares come in different flavours and cost different amounts.

Any suggestions - gratefully received.

John.

 

[sandpiper]

jls483,

"It is a system that would work on paper - I'm just not sure if companies house and the inland revenue are going to be happy that shares come in different flavours and cost different amounts".

No they won't be happy about it.

Whilst the limited company route seems like an appropriate method you need to be extremely careful, especially with regard to the new(ish) anti avoidance legislation known as Section 660.

This may not affect you since it is primarily targeted at small companies with profits less than 300k and you suggested that you would fall outside of this area. Worthwhile checking though.

Main suggestion would be (obviously) to find a decent accountant specialising in this area. A good starting point may be www.accountingweb.com.

Good Luck.

 

[wysinawyg]

You definitely can't do it as put. All shareholders with identical shares have to be treated equally, thats basic company law.

Why not just have different classes of share though all done officially with companies house?

You can give them all the same voting rights and dividend rights but just change the redemption conditions (you'd be using redeemables probably rather than ordinaries as otherwise it is a pain in the what nots for people to get their money out) to do what you want.

(although that isn't to say there isn't some specific problem I don't know of that you'd come across)

wysi

 

[Rainmaker]

I've done this.

I have an offshore OEIC (open-ended investment company), with less than 50 shareholders. No marketing or promotion, just friends and family. Set up just like a regulated hedge fund with a few hundred thousand in assets.

I also have an offshore management company that charges an annual management fee and a monthly performance fee. Profits are kept offshore and taxable when I bring them to the UK. Cost me 10's of thousands in advice to set up the structure (most of it wasted), but it works.

 

[MCGF]

Lol!

Your reallly getting into a pickle here aint ya!