Choosing the Legal Structure

There are several legal structures to use when setting up your angel network.

Most angel networks form a Limited Liability Company or LLC.

This gives the angel network a legal entity with which it can conduct business.

The members often pay an annual fee to fund the operational activities of the company.

Some angel networks form in association with a university.

Since the university is a non-profit organization, the angel group can work inside the university for its mentoring, networking, and other non-financial activities.

For running a fund or making investments, the angel network inside the university must set up an entity outside the university, since non-profit organizations cannot engage in investment activities.

Some angel networks form a not-for-profit LLC and then apply for non-profit status 501(c)3 with the IRS.  

Again, the mentoring, education, and other non-financial aspects can be done within the organization, but the financial aspects such as investing must be done outside.

Finally, some angel networks form a not-for-profit LLC  and then apply for trade organization status or 501(c)6.  

This structure allows the organization to engage in political activities.

Those angel networks choosing a non-profit or trade organization structure must set up a separate legal entity for any funds they want to raise and deploy.

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Let’s go startup something today.

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.