What is the best legal structure for your sports club?

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If you’re thinking about incorporating your sports club, one of the most important choices you will make is which legal structure to adopt.

Why incorporate?

Many clubs in Scotland are unincorporated. This is a suitable setup for small members’ or amateur clubs with no significant assets, no interest in property and who do not employ staff, enter into contracts or other arrangements involving risk.

However, unincorporated clubs have no “legal personality” and their committee members are personally liable for any decisions made on behalf of the club. Would you risk losing your house or savings on the chance something could happen at your club? If you’re involved in a sports club committee and your club is unincorporated you may be doing just that.

Incorporating your club will essentially see it become recognised as a legal entity in its own right, giving members limited liability (usually limited to a nominal £1) if there are debts or other liabilities that cannot be met from the club’s funds and other assets.

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Types of Legal Structures

If you’ve made the decision you want to incorporate, the next decision is which legal structure to adopt. The choices are plentiful and it can seem overwhelming deciding which option to take. It’s worth taking your time over the decision and making sure the structure you choose is right for your club, as each structure has its own strengths. Below is a brief description of the main legal structures sports clubs in Scotland have adopted.

Scottish Charitable Incorporated Organisation

The Scottish Charitable Incorporated Organisation (SCIO) is a legal form designed specifically for Scottish charities. It is a corporate body like a company or a registered society – but is formed and regulated by OSCR rather than by Companies House or the Financial Conduct Authority. It also provides limited liability; the legislation provides that the members of a SCIO are not liable for its debts or other liabilities if the SCIO is wound up. Unlike other types of legal entity with charitable status, SCIOs are only required to report to OSCR – whereas companies with charitable status must also report to Companies House and charitable community benefit societies must also report to the Financial Conduct Authority.

Community Interest Company

A Community Interest Company (CIC) is a type of company designed for organisations that want to use their profits and assets for the public good. CICs can be established either as companies limited by guarantee (CLG) (the vast majority of CICs take that form), or companies limited by shares (CLS). CICs have to carry out activities which benefit the community; the community interest test is, however, wider than the tests which need to be met for charitable status.

Community Benefit Society

As the name suggests, a Community Benefit Society (CBS) exists for the broader benefit of the community – in this case, the community within which the football club is located. CBSs have community benefit written into their governing documents, operate on a democratic one-member-one-vote basis and can be an attractive prospect for grant funders who can be safe in the knowledge that they are giving support to an asset locked organisation (assuming it adopts statutory asset lock).

CBS are incorporated organisations that carry on a business (in this case, the running of the sports facilities etc) for the benefit of their community. Profits cannot be distributed among members and are instead reinvested into the club or used to support projects within the community.

Company Limited by Guarantee

A Company Limited by Guarantee (CLG) does not have a share capital or shareholders, but instead has members who vote on elections to the board and constitutional issues such as alterations to the articles. Each member guarantees to pay a small amount if the club becomes insolvent (normally £1), hence the name “limited by guarantee” ie their liability is limited to the amount that they guarantee. The structure is very flexible, and common among not-for-profit organisations such as clubs or charities where membership is frequently changing.

This matrix describes what each of the legal types above can and can’t do.

Looking for guidance on incorporating your club? Get in touch now. We’ve supported the incorporation of numerous sports clubs across the country and what’s more, we may be able to offer you free support upfront. 

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