Investment Syndicates – what are investment syndicates and how do they work?  

Last Updated 29/08/2023

Ever thought of teaming up with your friends, pooling some cash into a larger ticket, and investing in a startup? Ever thought of getting fresh funds for your company not from an institutional investor but from a private group of people? Ever thought of helping either founders or private investors get funded or fund a startup? 

Then this is the right blog post for you. And if you have never thought of it, hopefully, you will pick up some new ideas and gain some insights. 

As the economic environment is getting more difficult, startups might look into different ways to get funded. A great way to find new funds is through private investors, also called angel investors, who believe in the startup. As a startup, potentially, you don’t want to have too many shareholders and have a ‘lean’ cap table, therefore, getting funds from an investment club might be a good idea. 

1 What are Investment Syndicates? 

An investment syndicate is the legal structure that allows co-investors to bundle their money, expertise, and connections to make a joint investment in a variety of asset classes, including private equity, startup investments, real estate, and crypto. The obvious example is startup investing: A group of friends can pool their financial resources to commonly acquire shares in a startup. Therefore, the investment syndicate is sometimes called investment club or angel club. 

Investment syndicates are commonly set up as simple partnerships with a syndicate agreement laying out the rights and obligations of the co-investors. The so-called Lead investor is typically responsible for sourcing and negotiating the deal as well as administering the ongoing investment. The other co-investors contribute cash, potentially along with additional network connections and specific expertise. 

2 What are the Advantages of Investment Syndicates? 

Investment syndicates have various advantages, both for the investors and the company: 

  • Investors:
    • Access to a wide range of private investments: The bundling of funds allows the partners to meet the necessary threshold in ticket size to get access to a deal. This means a larger range of possible investments, a better diversification of assets, and reduced risk. 
    • Expertise of the lead investor: The partners can benefit from the lead investor’s expertise and experience in sourcing, evaluating and negotiating investment opportunities. 
    • No administrative burden: The administrative side of the investment is typically taken care of by the lead investor, usually for compensation in cash and/or a percentage of profits in case of a successful investment. 
  • Company
    • Alternative funding: Alternative funding: Investment clubs can be an alternative source of funding next to more traditional sources such as VC money. Investment syndicates especially come in handy in early stages, in-between financing rounds, or in order to fill up a round. 
    • Lean shareholder structure: On the side of the company, not the individual partners but only the club will appear as a shareholder on the cap table. The investment syndicate is therefore a great way to pool shareholders on the cap table. This lean shareholder structure is advantageous for the target company, as it leads to less administrative burden with shareholder management and less corporate housekeeping. 
    • Clean cap table: Instead of having a large number of shareholders on the cap table which need to be taken care of (typical shareholder rights, signing of shareholders’ agreement, etc.) and which leads to administrative work for the company, the investment syndicate leads to only one party on the cap table which makes the administration much easier and keeps the cap table clean. 
    • Diversified parties involved: It can be advantageous for a company – especially regarding marketing activities and social branding – to involve more and diversified people, by indirectly allowing smaller tickets. 

3 Legal Setup and Governance 


Once you have decided to enter into an investment syndicate the next step is to set up an agreement with all partners. This is the legal backbone of the syndicate, defines rights and obligations of all parties involved and ensures a good governance. 

Typically, all parties of the syndicate enter into a syndicate agreement – always with respect to one investment and, therefore, only one target. For regulatory reasons, it’s important to always enter into a new syndicate agreement when a new investment is on the horizon. 

Nature of the Syndicate Agreement 

The syndicate agreement (typically) qualifies as a partnership (einfache Gesellschaft) according to art. 530 et seq. Swiss Code of Obligations. Furthermore, the syndicate agreement should be drafted in a way that the parties qualify as an investment club according to art. 2 para. 2 let. f of the Swiss Federal Act on Collective Investment Schemes. 

The parties of the syndicate agreement are partners and are often led by the lead partner which leads the investment with a certain target. 

The Agreement between the Syndicate and the Target 

Once the syndicate is set up, you can start negotiating the deal with the target. Typically, the syndicate enters into a state-of-the-art investment and shareholder agreement (together with other investors, if any) signed by the lead investor and the target in an equity round. An alternative is – of course – to enter into a convertible loan agreement or agree on a different type of investment. 

It is important to note that the partnership and not each Partner itself enters into the investment with the investment target. Vis-à-vis the investment target, the partnership often is represented by the lead Partner. The shares subscribed for by the investment target are then considered joint ownership of the partnership. 

Duration of the Partnership and Exit 

The partnership is founded by the partners and has an effective date (i.e., when the parties sign the syndicate agreement). The partnership then typically continues until the shares in the investment target are sold (either by a full sale of the investment target or by a secondary transaction) to a third party. The sale of the shares of the partnership (i.e., the exit of the partnership) is subject to the unanimous decision of all partners. If the shares of the partnership are sold, the partnership is automatically dissolved. 

Under certain conditions – typically – it’s also possible for a partner to leave the partnership earlier and complete a small exit (early exit). Typically, this is subject to the lead partner’s consent and is only possible if the partner wishing to leave the partnership finds a buyer for his part of the shares. 

Partner Assembly and Lead Partner 

As with most partnerships, there is a partner assembly which is the forum of the partnership. Inter alia, the partner assembly has the power to release or add new partners, take decisions on the budget, and take investment related decisions, which is typically held at least once a year. 

The lead partner calls in the partner assembly and takes the chair in the assembly. The lead partner is responsible for the agenda and other important topics vis-à-vis the partners.  

As mentioned above, the lead partner represents the partnership with respect to the investment target and communicates with the investment target. Therefore, the lead partner also has the obligation to inform the partnership about important topics such as upcoming general assemblies, financing rounds or an upcoming exit of the investment target. 

The lead partner also is responsible for the overall strategic and administrative management of the partnership, keeps track of the budget, and is also responsible to collect withholding taxes.  

Of course, the lead partner is entitled for reimbursement for his/her efforts. The reimbursement varies from a fixed fee, a percentage of the total net returns or hourly rates. 

Partnership and Shareholder Agreement 

The partnership typically accedes the shareholder agreement of the shareholders of the investment target. This is standard and necessary to govern all rights and obligations involved and ensures a good governance within the investment target. Under the shareholder agreement, typically the partnership is granted certain rights and obligations, such as a compulsory drag-along (in which the partnership is forced to accept a drag-along), and optional drag-along (in which the partnership is free to decide to be dragged), and tag-along rights. 

The partnership – as a party of the shareholder agreement – is typically represented by the lead partner. The lead partner represents the partnership vis-à-vis the other shareholders and also a potential buyer of the shares in case of an exit of investment target. 

Typically, in the syndicate agreement, the partners have already foreseen certain key events (such as drag-along, tag-along or a subscription right) and have already agreed on how the lead partner should in case of such event. This is important to avoid conflict if the investment target is to be sold or another important event happens. 

Distribution of Gains and Losses 

The law for simple partnerships is sound and clear: gains and losses are split equally between the partners. This is no different in a standard syndicate agreement. As mentioned above, the lead partner is mostly reimbursed by the total net returns and can deduct his reimbursement before the partners get their share. After the settlement of all costs of the partnership, the net returns are typically equally divided and paid out to each partner.  

4 Compliance with Swiss regulatory law 

Overview of key regulatory requirements relevant to Investment Syndicates

Below is an overview of key requirements to set up your investment syndicate in compliance with Swiss regulatory law and FINMA practice:  

Pooling of Money: Swiss Federal Act on Collective Investment Schemes 

Context: Collective Investment Schemes (‘funds’) are strictly regulated under Swiss law and require a FINMA license. In simple terms, a collective investment scheme is a pot of money that is pooled from different investors and externally managed for those investors. Although investment syndicates also represent a form of pooled money, the investments are self-managed by the syndicate. 

Because syndicate partners do not face the risk associated with the external management of assets, the law contains an exemption for investment syndicates. It applies if: 

  • There is a syndicate agreement setting out the membership rights of all partners 
  • All partners or a section of the partner take the investment decisions 
  • The partners are regularly informed about the status of their investment 
  • The investment syndicate has no more than 20 partners 

The legal form of an investment syndicate can be chosen freely. Most commonly, investment syndicates are set-up as simple partnerships. This is mainly due to avoiding unnecessary tax leakage for the partners. Also, both natural persons, as well as legal persons, can be partners in an investment syndicate. 

Practice: It’s due to regulatory reasons that investment syndicates have limited seats for partners. Likewise, individual investment syndicates are typically set up for each investment target in order to mitigate regulation. While there is some wiggle room relating to what legal form you choose, who can and cannot be a partner in your syndicate and to what degree the lead investor can define the concrete investment targets, we need to ensure the structure is overall compliant with the funds regulation. 

Taking deposits: Swiss Banking Act 

Context: The Swiss Banking Act ensures that only adequately regulated and FINMA-licensed banks are allowed to commercially accept deposits with a repayment obligation from the public. In simple terms, the goal is to protect you if you transfer money to an institution with the promise that they repay you at some point in the future. 

However, there are a number of exemptions under which the Banking Act does not apply: 

  • If the institution does not hold funds from more than 20 people or in total less than CHF 1 Mio. (with the additional obligation to not invest these funds/not pay interest and to inform the depositors that the institution is not regulated) 
  • If the funds are held on the institution’s own accounts for less than 60 days 

Practice: The investment syndicate typically bundles the investment sum of the partners prior to making the actual investment. In the example of a startup investment, the syndicate will first collect the investment sum from all the partners before the lead partner will transfer it to the capital deposit account of the startup. In order to mitigate banking regulations, we need to ensure that the flow of funds from the partners through the syndicate to the investment target is structured in line with banking regulations. 

Financial intermediation: Swiss Anti-Money Laundering Act 

Context: The Swiss Anti-Money Laundering Act applies to all financial intermediaries. In layman’s terms, a financial intermediary is anyone who professionally handles other people’s money, e.g., assists in investing or in transferring funds to third parties. Financial intermediaries need to be members of a Swiss self-regulatory organization (SRO) and need to comply with KYC and reporting duties (see this post for more context). 

Practice: According to FINMA practice, neither the investment syndicate itself nor the partners are subject to the Swiss Anti-Money Laundering regulation. However, FINMA practice states that a third party entrusted with the execution of the investment decisions and having power of disposal over the partner’s funds may classify as a financial intermediary with the need to obtain an SRO membership. This potentially affects the lead partner. We thus need to determine on a case-by-case basis whether such lead partners will be subject to the Anti-Money Laundering regulations with the need to become an SRO member. 

Investment advice: Swiss Financial Services Act 

Context: The activities of an investment syndicate – taking investment decisions, bundling assets, and executing deals – are generally not regulated by the Swiss Financial Services Act. However, what is regulated is the ‘provision of investment advice’. Simply put: Whenever you provide personal recommendations to people relating to financial instruments (like shares of a startup), you face the regulatory obligation to enter an official client advisor registry. The relevant point is the definition of ‘advice’. You are not advising if you stay factual and merely communicate general information and expectations.  

Practice: If you are setting up investment syndicates on a more regular basis, you might be actively looking to attract new partners to bring additional money for larger ticket sizes. We often see syndicates advertising through newsletters, mailing lists, or similar channels. This is where you need to pay attention to how you communicate: It’s a silver lining between providing factual information on an investment opportunity and targeting specific people with tailored investment advice. 

Investment club as a setup for small Venture Capital firms 

Context: The formation of a VC fund is quite strictly regulated under Swiss laws and may require a license both for the fund vehicle (which is, however, often set up off-shore) and the fund manager. However, it is also possible to structure a VC fund using a series of investment syndicates for each investment target. 

Practice: Investment syndicates can be used as a more professional structure to set up a venture capital fund, limiting the maximum number of investors to 20. The lead partner, however, will usually be subject to some regulatory obligations under the Anti-Money Laundering Act and the Financial Services Act. Nonetheless, in comparison to more sophisticated setups, this allows for a lean, fast and cost-effective alternative especially suited to smaller VC funds.  

5 Taxation 

As always, taxation is an important topic to be considered when thinking of creating an investment club. We focus on taxation issues regarding the partners and the syndicate and not on the target company. We want to provide some insights on who is the tax subject and who must declare the investment in his tax declaration. Furthermore, we will cover the treatment of withholding taxes. 

The following article is to be read assuming that all partners are only subject to Swiss taxes and that no international parties are involved. If partners are subject to source taxes and/or if they are subject to other tax jurisdictions (e.g., USA), the situation must be carefully examined with a specialized tax advisor. 

Partners are typically taxed individually 

As discussed earlier, the investment syndicate is typically set up as a partnership (einfache Gesellschaft). A partnership is typically not a tax subject – neither on the federal nor the cantonal level. Therefore, from a tax perspective, the syndicate isn’t subject to direct taxes. 

All syndicate partners must declare the investment in their own tax report like any other investment. Each partner must declare the amount (i.e., their stake in the partnership respectively the investment) and any gains. As always, it’s important to carefully file your tax report and to declare your investments correctly. If the partner is a private person, a tax-free capital gain is possible in case of an exit. 

Dividends and/or interest payments paid to the partnership and/or the partner are typically subject to income taxes and must be declared separately by each partner. It makes sense to get help from a specialized tax advisor in case of doubt or if the partner has committed himself to multiple and more complex investments. 

Treatment of Withholding taxes 

Dividends and interest are subject to withholding taxes (Verrechnungssteuern) and are deducted when paid to the investment club. The withholding tax rate is 35% for dividends and interest. The taxable subject is the debtor of the dividend and interest, and therefore the taxable subject is the target company. It is the responsibility of the target to declare and deduct withholding taxes.  

Generally, each partner is entitled to claim back their part of the withholding taxes. Therefore, the syndicate’s cashier must provide every partner with detailed information regarding the investment(s) to ensure each partner can claim back his stake.  

Federal tax authorities also allow investment syndicates to jointly claim back their withholding taxes under certain provisions. Especially if multiple investments with a lot of dividend or interest payments are involved, this procedure can be advantageous and time saving for each partner. If the investment syndicate wishes to jointly claim back withholding taxes, the syndicate’s lead partner has to apply for it through a special form and provide information about the partnership, the investment(s) and potentially has to grant access to the accounting records of the partnership. If the investment syndicate claims back withholding taxes for all partners, it’s obvious that the partners as private individuals are not entitled to claim withholding taxes back. 

6 Epilogue 

In conclusion, investment clubs can be a great way for individuals to come together and pool their resources to invest in various assets. By understanding the economic background, legal and regulatory questions, corporate setup, and taxation surrounding investment syndicates, individuals can make informed decisions about whether to participate in a syndicate. 

We hope this blog post has provided valuable information and insights to help readers navigate the world of investment syndicates. Remember, as with any investment, it is important to conduct thorough research and consult with a financial, legal and tax advisor before making any decisions. The LEXR-team is dedicated to such investment syndicates and is happy to help and answer any questions you may have. Don’t hesitate to book a free call with us. Happy investing! 

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By Marius Bättig

Senior Legal Counsel

Co-authored by: Florian Prantl


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