Hello AF Members, I am looking for some advice to start and legally structure an investment fund. Ideally in the most simplistic, cost-effective, tax minimization, and legitimate way. I am a Canadian citizen and currently reside here. I have a friend who manages his own fund in Singapore with 8-figures USD under management. He has agreed to provide me with $1 million+ to manage. My compensation structure will consist of a base salary and profit sharing for returns exceeding a TBD hurdle rate. I have narrowed it down to the options below.
Canadian Based 1) Forming a partnership with myself as the general partner and his corporation as the limited partner
Forming a corporation with myself and his company as shareholders
Forming a corporation of my own and contracting out my services. However, this would be a considered a personal service business according to CRA tax laws which results in equivalent income tax rates as being an employee (due to strict limits on tax deductions and credits)
US Based 4) Completing the Series 65 exam to become an RIA then forming a corporation, LLC, partnership, or LLP
Setting up a friends and family account with Interactive Broker to manage the funds. I am unsure how the business and income tax implications would work as I am based in Canada. Perhaps best to incorporate under this option. See link https://www.interactivebrokers.com/ff/en/main.php
Alternatively, he could bring me on as an employee but I would not prefer this option as 100% of my income would be taxable Additional details -His fund is structured as a corporation -I don’t intend to find additional sources of capital for this fund. Perhaps down the road but not anytime soon -Whichever method is chosen, I will be sure to draft a contract and bylaws to specify my responsibilities, compensation structure, and limited liabilities associated with the company/partnership
Lastly, I have read that I don’t have to register funds with AUM of less than $25 million with the SEC in the US. I cannot find any equivalent law in Canada. Would anyone know if I have to adhere to any specific laws with Canadian regulatory agencies? Not taking my track record in consideration, some may realize that in order for the fund to breakeven, I will have to achieve double digit returns. He is offering me this opportunity to manage the funds because I assisted in raising capital for him.
Thank you in advance