Distinguish between Horizontal and Vertical Commonality

Horizontal commonality requires a pooling of investors' assets and a pro-rata sharing of profits and losses among all investors. It focuses on the relationship among the investors.

Vertical commonality, however, focuses on the relationship between the investor and the promoter. Strict vertical commonality means the investor's profit is directly dependent on the promoter's success.

Broad vertical commonality means the investor's profit is dependent on the promoter's efforts.