When establishing your club, the members will need to select the most appropriate form of legal structure for the organisation so that it can be formally recognised, open a bank account, enter into agreements for hiring facilities, and be accountable to the membership. In this section, we explore the two main legal structures - an unincorporated association, and a limited company - and provide some additional notes about registering as a charity. This is a complex subject and we strongly recommend if you are considering establishing as a Limited Company that you seek professional advice.
Unincorporated Association
This is the most common structure used by the vast majority of sports clubs. The members come together and agree to establish the club with its own rules and operating procedures. These are then set down in the Constitution (see See Also panel for more on Constitutions).
This is the simplest form of club structure, the easiest to run and operate, and the one that most members will be familiar with. It's an "Association" because the club does not have a separate and distinct legal identity. For legal purposes, the club is regarded as a voluntary coming-together of its members - literally, an association of members.
An Unincorporated Association structure is most suitable for:
- The majority of small local clubs
- Clubs without significant buildings, equipment, or financial assets
- Clubs that provide services primarily for their own members (rather than the general public)
- Clubs that are not engaged in high-risk sports where accidents are far more likely and potentially costly if negligence could be proved
- Clubs that protect themselves against third party liability and negligence through a standard insurance policy for their sport
One consequence that you should be aware of with this type of structure is that - on the rare occasions that something does go seriously wrong - ALL the members of the association are liable. So, if the club goes bankrupt, all the members could be liable for the debts, irrespective of their individual financial circumstances. Because this liability is unlimited, those with more wealth could be hit harder than those with relatively little money.
On the positive side, unincorporated associations are simple to set up and run. You don't need permission from anyone else. You create your own constitution and run your own affairs within these rules. With a constitution, you'll be able to open a bank account and organise your finances. If you want to borrow money, one of your members will probably need to provide the lender with a personal guarantee or security for the loan.
Most clubs are able to insure themselves against the more common risks and your National Governing Body is likely to offer an insurance scheme that you can join.
Incorporation as a Limited Company
Forming or converting your sports club to a Limited Company enables your club to become established as a legal entity in its own right, separate from the individual members. There are two forms of Limited Company:
- Companies with an issued share capital, where ownership and control lies with the shareholders. This form is generally inappropriate for sports clubs.
- Companies limited by guarantee, where the members of the company each guarantee to pay a nominal sum (usually up to £5 each) in the event of the company being unable to meet its obligations. This form is usually used for sports clubs wishing to incorporate as a company.
There are several advantages to this structure. Because the club is a distinct legal entity, it is easier for the club to enter into contractual arrangements e.g. to borrow money, own buildings, or stage very large events. The club itself, rather than the individual members, are responsible for the club's obligations and debts (unless one of the officers has acted negligently or fraudulently, in which case the individual remains personally liable). And the individual members can only be held responsible for the debts and obligations of the club up to the nominal value of their guarantee.
The regulation and administration of Limited Companies is more onerous, and there are legal penalties for failure to comply. All Companies require various legal instruments such as a Memorandum and Articles of Association, and these must be registered with Companies House. The annual accounts must be presented in a prescribed form for Companies and also lodged with Companies House where they are open for public inspection. All Companies are subject to the provisions of Company Law; they are run by "Directors", and some club members may potentially be prohibited from becoming a Director because of their previous involvement with other companies or their financial status.
You should consider forming as a Limited Company if one or more of the following apply to your club:
- You own a high value of assets in the form of buildings, facilities, or financial reserves. However, some clubs have found a significant capital gains tax may be liable if they own considerable assets.
- You are engaged in selling significant volumes of goods and services to non-members such as training courses, accreditation, equipment, lettings, books and other materials
- You are planning to organise a major event where there is a potential risk of significant financial loss (in which case, you might consider establishing the event as a limited company owned by your club)
Mutual Society and limited liability
In recent years, a few clubs seeking to become incorporated and obtain the benefits of limited liability have begun to explore registration as a Mutual Society. The relevant legislation - the Industrial and Provident Societies Act, 1965 - is relatively little known and was created to regulate such organisations as cooperatives, mutuals, housing associations and working mens' clubs. In many respects it is ideally suited for larger membership sports clubs.
Mutual Societies are overseen by the Financial Services Authority, and they must approve all rule changes and receive a copy of the annual accounts. In general though, there would appear to be a relatively light touch.
In most instances, the structure, management and governance of the club remains entirely unchanged by converting to Mutual status. Control remains with the members. A few technical changes to the rules may be required. Mutual status does confere limited liability on the members, and establishes the club as a legal entity in its own right, capable of entering into contracts as a corporate body. In many instances, this will be a cheaper and more flexible route than incorporation as a Company Limited by Guarantee.
Registered Charity
The Charities and Trustees Investment (Scotland) Act 2005 and the similar Charities Act 2006 (applying to England and Wales) have both introduced modernising reforms to charity legislation. It is now possible for sports clubs to apply for registration as a charity.
There are two main benefits. Charitable registration establishes your club as a corporate body and legal entity (as distinct from the voluntary association of members in an unincorporated body). Charities are also able to benefit from more favourable tax treatment including Gift Aid on donations, discretionary relieft on rates, and other tax benefits.
The meet the charitable registration requirements, your club must meet two criteria. First it must provide one of several charitable purposes. These now include: "the advancement of public participation in sport" where sport is defined as physical skill and exertion and which have a health benefit; and "the provision of recreational facilities, or the organisation of recreational facilities, with the object of improving the condition of life for the person for whom the facilities or activities are primarily intended". Secondly, the club must demonstrate that if provides a "public benefit". Guidance on this aspect is still being developed: in essence you will need to show that your activities or facilities are generally available to the public without being unduly restrictive.
Charitable registration requires the club and its officers to comply at all times with charity regulations, including the annual provision of a trustees report and accounts (in a prescribed format), and be open for periodic inspection by the regulator. A major part of the regulator's role is to ensure public confidence and trust in all charitable activities.
De-registration as a charity is a difficult step, so registration should not be undertaken likely. Whilst several sports clubs are now applying for registration, the benefits are likely to be more attractive to the larger or wealthier clubs. An alternative and easier route for smaller clubs is registration with the Community Amateur Sports Club scheme, described below. CASC clubs are prohibited from applying for parallel charitable status.
Further information on charitable registration and the new legislation in Scotland, England and Wales is available on the regulators' websites (see side panel).
Community Amateur Sports Clubs
Community Amateur Sports Clubs (CASC's) can now apply to be registered with the Inland Revenue to claim tax relief. This will offer them the support and recognition they have long deserved. The new tax package is available to all CASC’s in the country and ensures that community sport is given the best possible chance to nurture and enhance local sports people. Any club which registers will enjoy each of the following:
- 80% mandatory rates relief
- Fundraising income up to £15,000 exempt from tax
- Income from interest exempt from tax
- No corporation tax on trading income under £30,000 per year
- Profits from rental income exempt from tax up to £20,000 per year
- Disposals assets exempt from capital gains tax
- Gift aid on individual donations
- Inheritance tax relief on gifts
- Gifts of assets on no-gain, no-loss basis for capital gains
- Business relief on gifts of trading stock
There is a dedicated CASC information website and the Inland Revenue has published detailed guidance on CASCs (see See Also panel). In general, for a club to become registered as a CASC, it demonstrate that it:
- is open to the whole community without discrimination
- is organised on an amateur basis; and
- provides facilities for, and promotes participation in, an eligible sport
Applications for registration as a CASC should be sent to:
Sports Clubs Unit, Inland Revenue, Meldrum House, 15 Drumsheugh Gardens, Edinburgh EH3 7UN
Business partnership
We've recently come across some sports organisations that are registered as Business Partnerships. This enables the founders and members to establish and run the organisation as a legal partnership, creating a defined legal entity with themselves as the constituent partners. The organisation has limited liability partnership status (similar to limited companies). Some partnerships then provide payment to their officers. The partnership can register for VAT and operate as a business employing other staff and devising appropriate policies for the sports activities.
