Can an LLC* aside from its main business, invest its cash into the stock market or any other equity market?

Question

* or any other business structure

Answer 1

It depends on your Memorandum and Articles of Association or Constitution, depending on the structure of your organisation. If it allows investments in the stock market, then fine. If it prohibits them, and you go ahead, the shareholders can come after you if losses were made cos you carried out an ultra vires act. Most charities prohibit investing in the stock market cos there's a chance they can lose all their hard-earned donations. If they have spare funds, they usually invest in time deposits or bonds or other instruments which are at least capital guaranteed.

Answer 2

Sure. The things you need to check are:

1) Did you contractually agree in your LLC agreement not to invest your spare cash in certain things?

2) If more than a certain % of your total assets are invested in companies in which you do not have majority control, then you potentially become an investment company that needs to register under the investment company act.

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