Proper governance is essential for sports clubs at all levels. Governance affects all aspects of a club, from the way in which it is managed, how it holds assets and conducts business, through to the liability of its members. In this article, we look at two aspects of club governance: club structure and club constitution. We’ve broken down the key points that clubs should be considering in relation to these areas.
Clubs can be run using different structures. Unincorporated associations and private limited companies are the main types of structure used.
Many grass-root sports clubs are run as unincorporated associations. An unincorporated association is an organisation set up through an agreement between a group of people who come together for a reason other than to make a profit. The club is not, therefore, a separate legal entity from its members and officers.
The unincorporated association status has some benefits. These include:
- Flexibility – the club can create its own rules governing its operation and is not subject to any other controls.
- Privacy – the club does not have to publicly file accounts or its governing documents.
- Membership – members can leave and join the club quickly and easily.
However, running a sports club as an unincorporated association also presents some issues. The most notable issues are:
Liability - the club is not a legal entity in its own right. This means that members have to contract on behalf of the club (in their own name) and are, therefore, personally liable for the club’s obligations and debts. In general, there is no limit to the members’ liability; although it may be possible to negotiate limits on liability in individual contracts.
Business dealings - the club cannot act in its own name for the purposes of: entering into contracts, employing people, owning assets (e.g. property), obtaining funding and conducting litigation. The members have to act on behalf of the company in their own names and, as a result, these procedures can become complex and difficult.
In light of these issues, clubs may benefit from being run as a private limited company.
Private limited companies
A private limited company is a separate legal entity, distinct from its members. It’s owned by its members and managed by its directors. Limited companies are regulated by the Companies Act 2006.
There are different forms of private limited companies. These are:
- Companies limited by shares - where a member’s liability is limited to the amount unpaid on the shares they hold in the company.
- Companies limited by guarantee – where a member’s liability is limited to the amount of the guarantee that they give.
- Community interest companies – which are formed specifically for the purpose of carrying on business for social purposes or to benefit a community.
The various forms of limited company all share the same fundamental benefits. These include, among other things:
Limited liability - the major benefit is limited liability. The company is a legal entity in its own right. This means that members are not personally liable for all of the company’s obligations and debts. Instead, the members’ liability is limited to the amount unpaid on their shares or the value of their guarantee.
Distinct entity - because the company is a legal entity in its own right, everything from the company bank account, to ownership of assets and involvement in tenders and contracts is purely company business and separate from the interests of the club’s members. The club can act in its own name, making the procedures easier and simpler to manage.
Funding - running a sports club as a limited company improves the legitimacy and transparency of the organisation. As a result, it may be easier for a club to secure business finance, through loans and/or selling shares in the club.
Property - a limited company can own land and enter in into leases in its own name, as a separate legal entity. This means that it’s members will not be personally liable for the club’s obligations in relation to its property, such as rent.
From an administrative point of view, it may be simpler for a club to hold property in its own name, because the club itself can own, transfer and mortgage the property as opposed to the members having to act in their own names.
Clubs that are thinking about incorporating as a limited company should review their property position to identify the club’s assets, rights and obligations that could be transferred to a limited company.
Tax – if the club is run for profit, it may be more tax efficient to operate as a limited company.
Limited companies do, however, come with some disadvantages. For example, they are subject to tighter regulations than unincorporated associates and, by law, they must comply with increased filing and accounting duties. As a result, limited companies can be less flexible than unincorporated associations to run and manage.
How we can help
Incorporating a club as a private limited company is a significant decision that should be considered carefully by the officers and members. We’re able to advise on important factors, such as:
- the pros and cons of incorporation in relation to your club;
- which form of limited company to use;
- how to structure the management and ownership of your club;
- the obligations and restrictions in your club property’s leases and/or title deeds; and
- the transfer of assets and liabilities to the new entity.
In addition, we are able to manage the incorporation process and handle the ongoing administrative requirements.
A sports club’s constitution is formed of the documents that outline its functions and the rules under which it will operate. Unincorporated associations are likely to have a club constitution agreement. For private limited companies, the constitution is formed of the articles of association and any other agreements that relate to the club’s constitution.
The most important aspects of the club’s constitution to consider are:
Authority - the constitution should give specific individuals the authority to make certain decisions about the club. For example, the club’s directors or officers will usually have authority to manage the club’s day to day business. The constitution may also specify that an individual or committee has the authority to manage a certain area of the club, such as the juniors. Clubs should think about their management structure and ensure the constitution clearly specifies who has the authority to make decisions.
Members’ rights - in relation to significant decisions, it might be appropriate to require the directors or officers to obtain the consent of the members. It’s important to consider when the consent of the members is needed and the amount of members that are needed to consent to a decision. The constitution should specify this.
Decision making process - the constitution should set out the process that the directors, officers and/or members should follow when making decisions. This should cover how a meeting is called and held, who can vote at the meeting and how many votes are needed in order for a decision to be passed.
It’s important to ensure that the constitution sets out a flexible process for decision making, for example to enable club meetings to take place remotely, with directors and/or members participating and voting by telephone or video call. The constitution could also allow for directors and members to instruct someone else to vote on their behalf. Procedures such as these will make it easier for directors and members to attend club meetings and balance club duties with other commitments, as well as ensuring that clubs can continue to function in the event of crises, such as the Covid-19 pandemic.
Appointment and removal of directors and members - rules on how directors and members are appointed and removed should be set out in the club’s constitution. It’s important to have a clear and fair process for appointing new directors and members. In addition, the constitution should make sure that, if appropriate, directors and members can be removed from their position.
How we can help
We can review your club’s constitution and advise on aspects that could be improved. If appropriate, we can draft bespoke terms for your club’s constitution to ensure that the club is effectively managed and runs smoothly.
Proper governance is essential for sports clubs at all levels. Governance affects all aspects of a club, from the way in which it is managed, how it holds assets and conducts business, through to the liability of its members.