Incorporation – limited company status

This is a structure where the company is a legal entity quite separate from its members.   The term ‘limited’ comes from the fact that the company’s finances are distinct from the personal finances of their owners. Two forms of limited company exists:

• company limited by shares - with an issued share capital, where ownership and control lies with the shareholders.  This form is generally inappropriate for sports clubs;
• company 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 last structure.  As 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 large events.  It is the club itself, rather than the individual members, that 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).  Individual members can only be held responsible for the debts and obligations of the club up to the nominal value of their guarantee.

On the negative side, your accountancy costs will increase, so you will need to be convinced that there are sufficient savings to justify the cost. The company will be regulated by Companies House, which has strict rules for reporting trading accounts (hence the price increase) and for the conduct of directors and other company officials. You will need to be happy that you can handle these regulations.  More details are available if you visit Companies House.

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;
• 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).