Legal structures for your group

A boy cries out in joy while paddling in a canoe.

The legal lowdown

When you're setting up a group, you'll need to think about the legal structure. With a bit of planning, you can make sure that it suits your needs now and in the future.

The structure is important because:

It determines whether your club is a separate legal entity or not.
It has an impact on members’ liability.
There are different rules and legal requirements depending on how your club is structured.
It can have financial implications.
It can influence how your club is viewed by others (e.g. banks, funding providers, the public).

What's right for my group?

Whatever structure or status you choose, you'll need to understand the implications. Your constitution should also reflect your structure. 

Clubs can either be unincorporated or incorporated.

You may also be eligible to adopt charitable status or community amateur sports club (CASC) status.

So what does it all mean?

Find out now...

Boys scrabble around picking up coloured discs on a court, it looks great fun

Unincorporated organisations

Unincorporated associations are run by individuals who are bound together by common rules (or a club constitution).

This structure suits small clubs. It's the most common type of structure for an amateur club.

These clubs usually:

Do not employ staff.
Do not own significant assets (e.g. land, investments or facilities).
Do not enter into significant contracts.

Advantages

Simple administration

This is the easiest, cheapest and most informal way of forming a group.

Unincorporated associations (unless they're also a charity) do not need to file accounts or an annual return, like companies do.

Flexibility

The rules can be whatever you choose, provided they are lawful, and can be easily updated.

However you may need to include clauses to satisfy your governing body or funders.

Disadvantages

There's no separate legal identity

The association is not separated from its members, in the eyes of the law. This means committee members have to enter into contracts, or hold assets, on behalf of the club.

If there's a claim against the club, or breach of contract, members of the committee, or wider club could be personally liable. 

Assets are held by individuals

They're not held by the club. They must be transferred if that person leaves the club.

two men run across a football pitch in the dark - they wear pink bibs and look really happy

Incorporated organisations

Becoming incorporated makes your club a separate legal entity. This means that club members are not personally responsible for any debts. 

It also allows the club to enter into contracts in its own right.

To protect their committee and members, more and more clubs are choosing to become incorporated.

Benefits of incorporation

Being incorporated ensures that:

There’s usually no personal responsibility for any legal actions or debts.
Assets don’t need to be transferred when individuals move on from the organisation.
Entering into contracts or employing individuals is easier.
The administration of contracts or assets is easier as they’re not signed for and held by one individual.
Personal assets and reputations are usually protected.

The incorporation process

It’s important to consider the benefits of each option and your eligibility, before identifying which suits your organisation best. You can do this before talking to a legal team.

The main options to consider are as follows...

Becoming a company limited by guarantee

An organisation that's set up as a company, and limited by guarantee, will be owned by its members. This is similar to an unincorporated organisation.

However 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 clubs 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. This includes the right to appoint and remove directors.

The club will be governed by its articles of association. Depending on how the articles are written, they may qualify for grant funding.

Advantages

Being a 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.
The directors of the company, and the members, are protected against claims, provided that the directors have complied with company law requirements.

Disadvantages

The administration needed to comply with legal requirements - including filing annual accounts, annual returns and providing directors’ information to Companies House.
There are fines for missing deadlines.
The articles need careful drafting to protect the club and its assets.

The government's advice on setting up a company

Becoming a company limited by shares

These organisations are owned by shareholders and are typically larger clubs with investors.

A company limited by shares is similar to a company limited by guarantee.

The main difference is that it's owned by its shareholders and the percentage of ownership is dependent on the number of shares purchased.

Community sports clubs usually aren't set up like this, although this structure may be used where an investor into a club wants to retain ownership (e.g. some football clubs).

Things to think about

Your organisation’s name.
Your rules, availability, and any existing trademarks.
Who your directors, secretary, and shareholders will be and how much control they each have (this is usually a percentage).
Preparing the documents for how to run your organisation i.e., the memorandum of association.

Information from the government on forming a limited company

Becoming a community interest company (CIC)

A community interest company (CIC) is a company that operates for the benefit of the community.

To qualify, the company must be limited by guarantee or shares - and demonstrate their community benefit.

Advantages

Company members have limited liability.
There's 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.

Disadvantages

CICs must meet certain requirements which set out how assets can be used (e.g. asset lock).
There's no tax relief.
There are administration requirements.

The CIC regulator has more information and step by step guides on CICs here. 

Things to think about

Drafting a ‘community interest statement’ that outlines your organisation’s plans.
Ensuring your constitution is written and up to date.
Considering how your assets are ‘locked’, this means they can only be used for your social objectives and limiting the money paid to shareholders.

Advice from the government on setting up a CIC

Becoming a cooperative or community benefit society

These organisations exist for the benefit of their members (co-operatives) or the wider community (community benefit society).

They’re businesses with limited liability. They are regulated by the Financial Conduct Authority and governed by the Cooperative and Community Benefit Societies Act 2014.

Cooperative and community benefit societies were previously known as industrial and provident societies.

Advantages

Providing a separate legal identity for the club.
Protection to members.
Companies are recognised and understood by external parties (e.g. banks, local authorities).
Cooperative and community benefit societies are regulated by the Financial Conduct Authority (FCA).

Disadvantages

Other structures may be more straightforward to set up and administer.

Things to think about

Identifying a secretary and three trusted members that can be involved in the application process.
Drafting the rules and plans for your organisation.
Exploring the Cooperative and Community Benefit Societies Act 2014.

Cooperative and Community Benefit Societies Act 2014

A boy in fencing gear stands smiling, with his fencing blade outstretched

Becoming a charitable incorporated organisation (CIO)

These organisations are regulated by the Charities Commission for charity trading and income from gifts and grants.

Charitable incorporated organisations offer the benefits of being incorporated and charitable status.

The objective must be exclusively charitable and meet the public benefit test. The charity can trade, although trading for a profit would require a trading arm.

CIOs are regulated by the Charities Commission.

Advantages

Advantages include:

It works well if all of the club’s income is to come from gifts and grants.
It provides a separate legal entity for the club and offer members limited liability 
Potentially reduced administration in comparison to a charitable company.

Disadvantages

Disadvantages include:

It restricts fundraising if the club wants to develop property or land that could be borrowed against.
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.

Things to think about

Things to think about include:

Selecting trustees who’ll be responsible for understanding the legal requirements and operational aspects of the charity.
Considering your organisation's name, whether it’s available and meets the government rules.
Decide on, and write out, your organisation’s purpose and rules – this’ll help you create a governing document which you will need upon application.

Advice from the government on setting up a charity

A group of young people in bright outfits exercise on an indoor court - a coach is providing instructions

Getting charitable status

Adopting charitable status may benefit your club. However you'll need to abide by certain rules and reporting requirements.

Most clubs can become charities. This includes those set up as unincorporated associations, companies limited by guarantee and community benefit societies.

The exceptions are community interest companies and non-charitable community benefit societies. They exist to benefit the wider community by trading to make a profit. 

A charitable incorporated organisation (CIO) must be a charity.

Setting up as a charity

A club must be able to demonstrate that its aims are charitable, and carried out for the benefit of the public. This may mean the club has to update its constitution to include the charitable and public benefit purpose.

If you're a charity and have an income of more than £5,000 per year, you must register with the Charity Commission. 

This doesn't apply to a charitable community benefit society which is registered by the FCA, with HMRC granting tax exemption.

If the club has charitable purposes but intends to trade, for instance to sell tickets, merchandise, food or drink for a profit, you may have to consider setting up a trading subsidiary.

Advantages

Advantages include:

Tax relief on charitable expenditure including trading profits, rental income.
You'll get tax benefits if you sell an asset or buy property.
Clubs get 80% relief from business rates.
Charities often enjoy considerable support from funders and the public.
You can claim Gift Aid on donations.
Charities can run certain fundraising activities that may be banned or require a licence for non-charities.

Disadvantages

Disadvantages include:

Status - once registered, a club cannot stop being a charity.
Administration - regulation by the Charity Commission can be an administrative burden.

The government's advice on setting up a charity

A group of ice skaters move slowly across the ice, hand in hand - they look like beginners, being led by a professional

Community amateur sports club (CASC) scheme

The community amateur sports club (CASC) scheme provides a number of charity-type tax reliefs to support local sports clubs.

The scheme can offer important financial benefits to clubs including significantly reducing business rates and allowing clubs to generate additional income through Gift Aid.

Advantages

Advantages include:

Mandatory 80% relief from business rates.
The ability to generate income through the Gift Aid scheme.
Exemptions from corporation tax.
It sets limits on the costs for members.

Disadvantages

Disadvantages include:

You'll need to make sure your club fits the requirements outlined by HMRC.
You'll need to meet certain conditions, such as being open to the whole community.
There are requirements regarding participation and income generation.
You'll need to ensure your club is structured appropriately and has the necessary governance arrangements.

More information

Seek professional advice and support from your governing body.

If your club wants to go ahead, you'll need to register as a CASC.

The government's advice on registering as a CASC

Useful links

You may need to seek professional advice.

Plus here are some links to explore:

NCVO's guide to choosing your legal structure

Active Partnerships

National governing bodies

FCA's Mutuals Public Register

Charity Commission's model constitutions

Charity Commission's website

Advice from HMRC

Legal structures for your group

Chapters in this topic

The legal lowdown

What's right for my group?

Sign up to our newsletter