Creating an Investment Fund with Friends: A Complete Guide

Create an investment fund with friends: key steps, practical tips, and risk management to successfully execute your joint venture.
Gaspard de Monclin
February 12, 2025

Why create an investment fund with friends?

Investing with friends may seem simple and natural, but it's still a business that requires thought, organization and support. Before getting started, it is crucial to understand the dynamics at work when a group shares common financial ambitions. First of all, why choose to create an investment fund between friends rather than investing individually? The answer lies in the multiple benefits that such a structure can offer.

The advantages of a collective investment between friends

The advantages of creating an investment fund with friends are numerous. Here are the most notable ones:

  • Pooling of resources: Each member can contribute to the formation of more capital than they could have mobilized alone. For example, instead of buying modest real estate, the group may consider larger projects such as a rental property.
  • Cost sharing: Administrative costs and investment expenses, such as legal fees or transaction fees, are shared among all participants. This allows for better financial management for everyone.
  • Risk reduction: Potential losses are shared, which alleviates the individual burden. If an investment does not deliver the expected results, the impact is amortized through collective participation, limiting the consequences for each member.
  • Group learning: Members benefit from each other's skills and experiences, thus enriching their investment knowledge. It is also an opportunity to strengthen skills such as financial analysis, risk management and diversification strategy.
  • Strengthening relationships: Sharing a common project strengthens friendships by creating a positive and constructive group dynamic.

Limits and precautions to take

However, precautions are essential to avoid conflicts:

  1. Formalize the rules: Clearly define the roles, rights and duties of each person in the legal statutes. This document acts as a structuring framework that avoids misunderstandings. For example, it should state how decisions will be made and how contributions will be managed.
  1. Communicate regularly: Maintain an open dialogue to prevent misunderstandings. Schedule regular meetings to review the goals and status of investments. Clear communication is essential to avoid misunderstandings.
  1. Adopting a professional approach: Even among friends, it is essential to structure the investment fund as a serious entity, with clear documentation, formalized statutes and a long-term vision.

The steps to create an investment fund with friends

Structuring an investment fund between friends is not just a question of pooling capital. It's about establishing a shared vision and structuring a collaboration that is based on solid foundations. Each step of the process is critical as it helps to minimize risks and maximize opportunities.

Step 1 — Define the common goals of the fund

Start with an in-depth discussion to identify the aspirations of each member. This step is critical to align expectations and prevent future discrepancies. Ask yourself the following questions:

  • What sectors? Identify preferred areas, such as real estate, tech, or green energy. For example, a group interested in innovation could focus on start-ups and fintechs.
  • What returns can you expect? Set realistic expectations based on available resources. It is important to keep a balance between ambition and caution.
  • What time horizon? Decide if the investment is short, medium, or long term. It will also influence strategic choices.

Step 2 — Choosing a suitable legal structure

The legal structure plays a crucial role in managing and protecting members. Here are the most frequently used options:

  • Civil Society (SC): Ideal for its simplicity, but involves unlimited responsibility. This option is often chosen for real estate investments, as it allows flexible management while respecting fiscal constraints.
  • Simplified Joint Stock Company (SAS): Offering flexible governance, it makes it possible to adapt to the needs of members and offers interesting tax advantages. In addition, SAS is ideal for raising funds or attracting new external investors.

Legal and regulatory aspects to be respected

When it comes to creating an investment fund between friends, legal compliance is a fundamental pillar. Ignoring legal obligations can lead to serious consequences, such as litigation or financial sanctions.

The first step in ensuring this compliance is choosing the right legal status. Second, it is essential to draft clear statutes that define the roles, rights and duties of each participant.

What legal status for a fund between friends?

A key document ensures a solid structure:

  • Legal statuses: They define the roles and operating rules of the fund. These statutes must specify the voting rights, entry and exit procedures, as well as the financial obligations of each member. For example, they can determine if a member can sell their shares to a third party. This step is essential to protect investors. This step is essential to protect investors.

Agreements and contracts to be formalized

Formalize agreements to specify:

  • Financial contributions: Amount and terms of payment. Each member must commit to meeting their obligations.
  • Decision-making: Voting procedures in case of disagreement. For example, some important decisions may require a qualified majority.
  • Exit clauses: Requirements for a member to leave the fund. This avoids conflicts in the event of early departure.

Finally, tax aspects must be taken into account: each type of fund has its own taxation rules, and it is often necessary to consult an expert to optimize the tax structure while complying with current legislation.

The risks of an investment fund between friends

The risks of an investment fund between friends should not be overlooked. These may be relational, financial, or legal in nature, but precautions may limit them.

Relationship risks and how to avoid them

Personal relationships can be put to the test when there are disagreements or disappointing results. To avoid these situations:

  • Provide mechanisms for resolving conflicts: An external mediator or arbitration provided for in the statutes can facilitate the management of disputes.
  • Set clear expectations: From the start, it is important that all members agree on the fund's strategy and goals.
  • Maintaining smooth communication: Organize regular meetings to monitor the fund's performance and discuss the future.

Financial and legal risks to anticipate

The financial and legal implications also require particular attention:

  • The risk of capital loss: Investing involves inherent risks. Good portfolio diversification can help limit losses.
  • Legal disputes: In the event of a major disagreement, the absence of clear legal documents can make it difficult to resolve disputes. Working with legal experts early on is crucial to avoid these types of issues.
  • Fiscal responsibilities: Depending on the structure chosen, tax obligations may vary. An SAS, for example, imposes a different tax regime than an SC.

Pooling money to invest with friends

Pooling money to invest with friends is an approach that requires structured planning to avoid administrative or financial complications.

Financial contribution mechanisms

  • Initial contributions: Each member must define how much they are ready to invest. It is often useful to formalize these contributions in the form of shares.
  • In-kind contributions: Some members may contribute other than money (e.g. expertise, equipment or professional network). These contributions must be evaluated and formalized.
  • Regular contributions: If the fund needs regular funding (for example for recurring investments), it is important to plan for these contributions as soon as the fund is created.

Managing gains and losses

Clear and balanced management of profits and losses is essential to maintain trust between partners. Here are some best practices to implement:

  • Guarantee a fair and transparent distribution of benefits.
  • Define responsibilities in case of losses and provide adjustment mechanisms.
  • Formalize a schedule for the distribution of earnings adapted to tax obligations and financial needs.
  • Include mediation or arbitration solutions in case of disagreement.

Why choose Overlord to create an investment fund between friends?

Overlord simplifies your project thanks to its expert legal support and its investment platform intuitive. Our all-in-one solution allows you to structure, formalize and manage your fund effectively.

By combining legal expertise, advanced technological solutions and a thorough understanding of the needs of investors, Overlord offers comprehensive and personalized support.

The benefits of using Overlord

  • Simplicity and accessibility: Overlord makes creating and managing a fund accessible to everyone, even without prior financial expertise. The platform guides each user through all the steps, from initial structuring to ongoing management.
  • Legal compliance: With Overlord, you can be confident that your fund meets all legal and regulatory requirements. Thanks to our in-depth legal and regulatory expertise, you avoid any risk of non-compliance with financial institutions.
  • Advanced management tools: Overlord offers interactive dashboards to track fund performance, manage member contributions, and plan future investments. These tools allow for total transparency between participants.
  • Flexibility for all types of projects: Whether your group wants to invest in ETFs, real estate, cryptocurrencies, or other sectors, Overlord offers solutions tailored to your specific needs.

A group of friends, Smart Momentum Invest, launched its investment fund in 2024 with Overlord in the form of a Civil Society (SC). This group, composed of about ten members, has chosen to invest together in ETFs. Thanks to Overlord, they were able to structure their fund in a professional manner, establishing clear rules for managing contributions and distributing profits, strengthening their mutual trust and collective commitment.

FAQ on creating an investment fund between friends

Which sectors should you choose for a fund with friends?

Real estate, tech, or start-ups — the opportunities are multiple. The ideal is to choose a sector that corresponds to the interests and skills of the members of the group.

What initial budget should be planned?

It all depends on the goals, but a minimum amount of capital is required for each project. For example, for a real estate investment, plan for a significant initial contribution.

Can we add new members?

Yes, provided that the statutes provide for it and that this is validated by a vote of the existing members.

Launch your collective investment project with Overlord and benefit from a turnkey solution to succeed. Make an appointment with an expert right now!

Gaspard de Monclin
February 12, 2025

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