To protect their committee and members, more and more clubs are choosing to separate their legal identity by becoming incorporated clubs.
Being incorporated allows the club to enter into contracts in its own right and offers protection for club members. Below are the different types of incorporation your club could adopt:
Company limited by guarantee
Like an unincorporated association, a club set up as a company limited by guarantee will be owned by its members. The main difference is that the club will have a separate legal identity allowing it to enter into contracts in its own right. This structure is well suited to club operating on a non-profit making basis where membership changes regularly. Members agree to pay a minimal amount if the club becomes insolvent, limiting their liability. Members are entitled to attend members meetings and vote which includes appointing and removing directors.
A club set up as a Company Limited by Guarantee will be governed by its Articles of Association and depending on how the articles are written, may qualify for grant funding.
Advantages of a company limited by guarantee include:
- Separate Legal Entity. This allows the club to enter into contracts and hold assets or investments in its own name
- Limited Liability. Members are protected and only required to pay an agreed sum (typically £1) if the club becomes insolvent. Having limited liability will protect the directors (of the company) and members against a claim, provided the directors have been compliant with company law requirements.
The main disadvantage of a company limited by guarantee is the additional administrative work needed to comply with legal requirements. These including filing annual accounts, annual returns and providing directors’ information to Companies House. There are fines for missing deadlines. The articles will need careful drafting to protect the club and its assets.
The Starting a Company section on GOV UK has more information on starting a company and the ongoing requirements.
Company limited by shares
Community Interest Company (CIC)
A Community Interest Company is a company that operates for the benefit of the community. To become a CIC the company (limited by guarantee or shares) must apply and demonstrate their community benefit. As a company members enjoy limited liability. CICs must meet certain requirements which set out how assets can be used (e.g. asset lock).
An advantage of a CIC include is that it provides a clear, limited company structure, for clubs wanting to be seen as social enterprises rather than a charity. The rules, including the assets lock and community benefit test, provide clarity and focus on what it means to be of benefit to the community.
CICs offer no tax reliefs but have additional administration requirements.
Cooperative and Community Benefit Societies
Cooperative and Community Benefit Societies are types of structure that were previously known as Industrial and Provident Societies. They are reasonably straight forward to set up and provide a separate legal identity for the club and offer protection to members. For many clubs, a company limited by guarantee is more straightforward to set up and administer. Companies are also more likely to be recognised and understood by external parties (e.g. banks, local authorities).
Cooperative and Community Benefit Societies are regulated by the Financial Conduct Authority (FCA). Refer to the FCA website for more information.
Charitable Incorporated Organisation
Charitable Incorporated Organisations are, as the name suggests, organisations that offer the benefits of being incorporated and charitable status in one body. A CIO is a simple mechanism for a charity to trade although trading for a profit would still require a trading arm.
CIOs are regulated by one body – the Charities Commission – and therefore can be simpler to administer than clubs set up a company with charitable status. The latter would have obligations to both Companies House and the Charities Commission.
In order to register as a CIO, the objects must be exclusively charitable and meet the public benefit test.
If all of the club’s income is to come from gifts and grants then a CIO model may be appropriate. But it restricts fundraising if the club wanted to develop property or land that could be borrowed against.
The main advantages of a CIO are:
- They provide a separate legal entity for the club and offer members limited liability
- It may reduce administration in comparison to a charitable company.
The main disadvantages of a CIO include:
- The reduction in administration over a charitable company may not be significant
- As a relatively new structure it is less well known and understood by third parties including banks and local authorities, but this is gradually changing.
For further information see the Charities Commission.