How can I start an investment fund LLC with immediate family members?

You have ERISA issues, tax issues and investment advisor rules (Fed and CA) to consider here and all are beyond the scope of what avvo is intended for. Best you hire a business lawyer and CPA to help you with getting this launched.

Need more facts. This is an idea that must be formulated the right way . You need to discuss your real goals with a responsible attorney that understands accounting ,economics,taxes,business law. Don't build castles in the sand. As for family members not suing you! , Well sorry to say but my experience is ferocious divorces, remarried parents, brothers and sisters literally killing each other for small things like the teapot from their grandmother ! My advice hire the right counsel if you are serious about your idea

There is something called a "family office" exemption from registration as an investment adviser, but the levels of funds required and who can participate are narrowly defined. You would have to apply to the SEC for an exemption. Even so, such a designation would not obviate your compliance with state and federal securities laws. In addition, you would have "party in interest" issues under ERISA that would need to be addressed, which likely would require fidelity bonding of some sort. I would think long and hard about doing this. If you are inclined to proceed, you will need (a) an attorney to put the structure together, (b) an auditor to audit performance and (c) an administrator of some kind to manage the paperwork and to provide statements to investors. Whatever you do, do NOT leave the auditing of performance and generation of account statements as a task you would perform.

I understand that you’re handling family money, nevertheless, I don’t recommend your proposed course of action as you’re going to have a lot of legal obstacles, even in the best case scenario. Anytime you're investing money on behalf of other people, you're going to have regulatory obstacles with the SEC or worse, the California Department of Corporations, Securities Regulation Division, e.g. Series 7 and Series 65, and registration as an investment adviser pursuant to either the Investment Adviser Act of 1940 or the California Corporations Code. Keep in mind that your "fund" will also have to satisfy the requirements of the banks and fund managers entrusted with your IRAs and 401(k) accounts, and they may not qualify you as a qualified investment. Also, it's not that you're in jeopardy arising from your mom's litigiousness, but your may run into a bank or fund that may report your activities to the SEC or Secretary of State. Mr. Cornish correctly identified that you may qualify for an exemption from the investment adviser registration assuming you’re only handling family money, but that doesn't alleviate your problems. The Dodd-Frank Act also created a new exemption for funds having below $150 Mio. in assets under management which you may also qualify for if you have friends participating in your fund (If you have more than $150 Mio., I'm sending you an invoice.). In either instance, you’d still need to file for an exemption from registration as an investment adviser, and maintain all of the business practices as promulgated by federal securities laws, the minimum capital requirements, restrictions on the types of investment requirements, record-keeping requirements, disclosure requirements, and annual reportings requirements to the SEC. As you can see, this isn't easy, even in the easiest scenarios – checkout Part 1A of Form ADV (google it). If you have to register as an investment adviser, you'll have a multitude of additional requirements for the appropriate Series 7 and Series 65 transactions, depending on how you invest the money. Assuming that the SEC doesn't have jurisdiction because you’re dealing exclusively in California , you’ll have requirements to file for an exemption (again, assuming it’s all family money), and observing similar state-mandated regulatory requirements much like those promulgated by the SEC for family offices. Otherwise, you’d need to register as an investment adviser with the State of California. Like the SEC’s requirements, you’re going to need the Series 7 and Series 65 licenses for certain types of dealings. Again, I don’t recommend this course of action. You’ll have a better go about doing things with less risk if you decide to make investments as a group of separate investors, with each person investing on his own awareness and knowledge of the investments. To execute the plan you're considering costs about $100,000 in legal fees to establish and about $50,0000-$75,000 each year thereafter to maintain the appropriate securities filings, necessary governance procedures for the purposes of making prudent investments, tax planning and other implications arising from your activities. I represent a private equity fund and recently ran this gauntlet last year. Check out my blog post of my findings if you want to know more. Good luck, and reconsider your thinking with the simpler plan I laid out.