Amateur sports clubs come in all shapes and sizes. Your club might be a community amateur sports club (CASC), a charity, or have no special status. It also might be an unincorporated association, a company or charitable incorporated organisation. It might use land which is held on the terms of a separate charitable trust, or which is held by a separate company.
The diversity of sports clubs, their members and their histories means there are often a range of different considerations when clubs look at changing their legal structure and/or their legal status. However, having advised many different clubs over a long period of time, including rugby, cricket, football, hockey, tennis, golf and multi-sports clubs we’ve observed several common issues that arise.
Structure and status
A club’s legal structure could be considered the 'box' through which it operates. Its legal status (if any) is a 'label' on that box, which may afford the club certain advantages, for example tax benefits.
Examples of common legal structures for sports clubs include:
- unincorporated associations
- companies limited by guarantee
- charitable incorporated organisations (CIO)
Examples of common legal statuses for sports clubs include:
- no special status
- community amateur sports club (CASC) status
- charitable status
There can be various triggers that lead a club to reviewing and considering whether to change its legal structure and/ or legal status. Common factors include tax concerns, concerns relating to the personal liability of committee members and administrative/ operational issues.
We often see clubs moving from an unincorporated structure to a company or a CIO, to try and reduce the risk placed on individual committee members. This can be a particular concern for larger sports clubs or clubs with a higher risk profile. A club going through this process is generally referred to as incorporating.
We also often see clubs considering whether they can switch from having no status to becoming a CASC or a charity – or from being a CASC to becoming a charity. This is generally to take advantage of financial and tax benefits.
A change of legal structure and/or status is a significant change and we would generally recommend that a club considering such a change reviews the options carefully and takes appropriate legal and financial advice. The goal will be to put in place a model that will serve the club well in the long term.
CASC or charity
Most clubs considering a change of this nature will review whether it is possible for them to become a CASC or charity, if they are not already. In order to be eligible for CASC status, there are several requirements to be met, which are summarised in HMRC’s CASC detailed guidance notes. Whilst it may not always be the case, we have tended to find that clubs which are eligible for CASC status are also eligible for charitable status.
Some common issues that arise for clubs considering their eligibility for either status include:
- is the club’s membership open or are there prohibitive restrictions, for example relating to skill level?
- is the cost of participating at the club affordable to the community it serves?
- are any payments made to players and if so are these within acceptable limits?
- does the club have a social membership and, if so, is this activity within acceptable limits?
- does the constitution specify that any net assets on dissolution be applied for sporting/ charitable purposes?
Where a club determines that it does not currently meet the requirements, it might be that a small relatively unobtrusive change could result in the club becoming eligible. For example, this could be running the bar and the club’s social membership through a trading subsidiary in future.
Membership
Regardless of which option the club pursues, a very important consideration will be how best to serve and communicate with the membership of the club. Sports clubs generally exist for the benefit of their members and it may also be necessary to get a formal resolution of the members under the club’s constitution in order to proceed with the change.
Whilst some sports clubs have fairly relaxed memberships who will follow the recommendation of the managing committee on these matters, many clubs have members who may raise concerns about any substantial change to the structure or status of a club. It is therefore important to gauge the mood of the membership early on and to develop a communications plan. The committee will generally want to strike a balance between giving the membership sufficient information to reassure them that it is sensible to go through this process and that it is being properly managed, without involving members in too much of the detail which can lead to a disproportionate amount of resource being required to manage the project.
Even where communications are carefully managed, some members can have strong views and the committee may have to accept that not everyone will be in favour of the proposed changes.
Governance and officer roles
When going through such a change, it’s not uncommon for a club to find that its rules are out of date and don’t quite reflect current practice. The process of incorporating can be a good opportunity to review and update the club’s governance.
This could involve revising the number of committee members, amending officer roles and terms, or clarifying provisions relating to the admission and removal of members. Sometimes these kinds of changes can spark concern from the membership, so some clubs may decide to defer any big changes until after the incorporation has taken place to avoid the risk of derailing the project.
Occasionally, we’ve seen a very big governance change made on incorporation – for example a move from having a wider membership to having the committee as the only constitutional members of the club. This is an unusual model for a sports club (and it is not possible to adopt this model if you are a CASC), but we have seen it work.
In multi-sports clubs it is also necessary to consider the dynamic between different sections of the club.
Subsidiaries, related entities, and/or trusts
Some sports clubs exist in multiple parts. For example, the club itself may be an unincorporated association, but its land may be held on a separate charitable trust or by a separate limited company under the control of a small number of (generally longstanding) club members. Some clubs also operate trading subsidiaries, generally to run certain activities through the entity which may otherwise impact on the club’s eligibility for CASC or charity status.
It is important to get to grips with the existing structure of the club at the beginning of the process and ask why it is in place and whether it needs to continue to be in place once the club has completed its change of structure/ status. Clubs can become wedded to complex historic structures, but, in our experience, a simpler structure is better in the long term.
Tax
Tax considerations are often a driving factor in leading a club to consider a change of status to a CASC or charity. It is helpful to be able to model exactly what the financial position will look like if the new status is adopted, as this helps the committee to decide whether to proceed with the change or not.
It’s also important to consider whether the proposed change could have any potential adverse tax implications. For example, a club not looking to obtain any special status but wising to incorporate into a company may risk a stamp duty land tax charge on incorporation.
Specialist tax advice should be sought early on in the process to confirm that the change will have the desired outcome for the club.
How we can help
Our specialist charity lawyers can advise you across a range of issues, from setting up a charity, entering into a new lease or contracts, to advising on a merger or campaign. For more information, or to speak with a member of the team, please contact us (020 3826 7510) or complete our online enquiry form.