Should my sports club be considering incorporation?
The governance and structure of sports clubs should be reviewed on a regular basis, which may involve considering incorporation.
There are many benefits to becoming an incorporated body. The key advantage is the establishment of a separate ‘legal personality’, which reduces the personal risk which members and officers of clubs could otherwise be exposed to.
Why does incorporating reduce risks to officers and members of the club?
Having a separate legal personality means that the incorporated body can enter into contracts in its own name and hold its own assets and liabilities. This means that any liability taken on under such agreements is the liability of the organisation and not of the individuals (whether trustees, committee members or members of the club), which would otherwise be the position if you are not incorporated. It is also administratively easier, because those individuals are not signing contracts or holding assets in their own name, on behalf of their club.
It also means that, if the organisation runs into trouble, it is generally the incorporated organisation itself which is on the hook, rather than individuals involved in the club. The personal assets of individuals are therefore usually protected (subject to some limited exceptions). By contrast, the position for an unincorporated body is that liabilities will be in the name of the individuals involved. This means that there is a personal risk taken on by an individual when becoming involved with an unincorporated body.
There are some exceptions to the limited liability offered by an incorporated structure, where individuals could still be held personally liable, including if they give personal guarantees, if they breach their duties as trustees, or where the law requires personal responsibility (e.g. in relation to certain criminal, insolvency and environmental matters). However, incorporation gives individuals much better protection than they have with the unincorporated club.
Where clubs employ staff, enter into contracts or have an interest in land, the risk to the managing individuals increases. If a club is unincorporated, there can be a barrier to recruiting new trustees or committee members who are concerned about the risk to their personal assets.
Sporting governing bodies
We are aware of various sporting governing bodies which are encouraging their member clubs to consider incorporation. Sport England notes that an increasing number of clubs are choosing to separate the legal identity of the club from the committee and members.
Which incorporated structure would suit my club?
There are a number of possible incorporated structures available to choose from, including:
- Companies (limited by guarantee or by shares)
- Community interest companies
- Charitable incorporated organisations
- Community benefit societies
- Co-operative societies
The most suitable structure for each club should be determined on an individual basis. There are several factors to consider, such as the extent of member involvement, whether or not the activities of the club are wholly and exclusively charitable, and what plans the club has for the future.
Is there anything my club should be thinking about before incorporating?
Clubs considering incorporation should review their current governing documents – usually the club rules or constitution – and start to think about the extent of the assets held on behalf of the club which will need to be transferred to the incorporated entity. This can include land, cash and investments, as well as a wide range of kit and other assets, some of which are easier to transfer than others. You should also consider whether you have had grant funding with conditions attached or whether there are any other factors which might require you to involve third parties. Seeking tax advice on the benefits and implications of incorporation can also help clubs to make a decision as to whether they want to pursue incorporation, and this might influence what legal structure they might use and whether or not it can or should seek charitable or community amateur sports club status.
If you would like to discuss any aspect of this article further, please contact Hayley Marsden or any member of our Charities and Social Economy team on 0113 243 6100.
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The information in this article is necessarily of a general nature. The law stated is correct at the date (stated above) this article was first posted to our website. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.