The legal structure of an investment refers to the legal organisation and regulations governing various investment vehicles, such as mutual funds, trusts, corporations or limited partnerships. It determines the rules, liabilities, tax treatments and governance structures that apply to the investment. Understanding the legal structure is crucial for investors as it influences their rights, responsibilities and the overall risk profile of the investment.
Common legal structures in the investment world include open-ended investment companies (OEICs), unit trusts, limited partnerships and investment trusts. Each structure has distinct characteristics. For instance, an investment trust is a publicly traded company whose business is investing in other companies. Meanwhile, unit trusts and OEICs offer a way to pool investors' money to invest in a diversified portfolio of assets.
The legal structure affects many aspects of an investment, including liquidity, pricing, tax implications and investor protection. For example, the structure can determine how easy it is to buy or sell shares in the investment or how gains are taxed. Investors need to consider the legal structure as part of their due diligence process to ensure it aligns with their investment strategy and risk tolerance.
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