Legal Structure

After agreeing the main aims and purpose of your club, the next thing to consider what legal form the club should adopt.
The majority of sports clubs in Scotland are established as unincorporated associations as this is a form which is quick and easy to set up and to operate.  However being an unincorporated association may not be the most appropriate legal form for your club in the long term and so careful consideration should be given as to whether there may be a more appropriate legal form which your club should adopt.
The information below summarises the main legal forms which are available to clubs and the advantages and disadvantages to these. 
It is important to note that in most cases, a change in legal form will not result in the assets and liabilities of the club automatically transferring to the new legal form.  A formal transfer would be required and we would strongly recommend that legal advice is taken to ensure that the correct process is followed. 


Unincorporated association

As outlined above, the unincorporated association is the legal form commonly adopted by sports clubs as well as charities and other not-for-profit organisations. 
The key criteria for an unincorporated association are that it should (a) consist of two or more persons with non-business purposes; (b) have contractual relations between those persons; (c) be governed by rules; and (d) be non-temporary.
An unincorporated association is not subject to outside legal control and there is no central register of unincorporated associations.  Importantly an unincorporated association has no legal personality separate from its members which does inevitably raise the potential for the members having unlimited liability for the association's debts.
 

Advantages Disadvantage
Quick and easy to establish No separate legal personality which means that the club would need to enter into contracts, hold property, employ staff and sue/be sued through its members (usually committee members)
Relatively cheap to operate and with limited ongoing administration required Potential for unlimited liability for committee members and, in certain cases, the wider membership
No regulator or central register with details of the unincorporated association Lack of transparency for third parties dealing with the unincorporated association
   

Unincorporated charity

Provided it meets the charity test under the Charities and Trustee Investment (Scotland) Act 2005, an unincorporated association could register as a charity with the Office of the Scottish Charity Regulator (OSCR) which would bring with it a number of benefits including gift aid, rates relief and increased access to grant funding. 
The charity would be regulated by OSCR and would have annual accounting and filing requirements which it would be required to meet.  The trustees of the charity would also have statutory duties which they would be expected to adhere to.

Advantages Disadvantages
Benefits of charitable status including gift aid, rates relief and increased access to grant funding Similar disadvantages as an unincorporated association without charitable status (including no separate legal personality and the potential for unlimited liability of members)
More favourable public perception which can assist when seeking new members or funding More onerous filing requirements which will increase costs 
More transparency than an unincorporated association without charitable status as certain details of the organisation will appear on the charity register held by OSCR Greater degree of regulation

Company limited by guarantee

A company limited by guarantee is the most common form adopted by not-for-profit organisations.  
Unlike an unincorporated association, a company limited by guarantee has separate legal personality.  A company limited by guarantee is regulated by Companies House and does not have a share capital.  There is no liability on members to contribute capital whilst the company is a going concern but there is a liability upon members to make a contribution to enable the company to pay its debts upon a winding up (this is, however, limited to the amount the member has guaranteed - often this is £1).    

Advantages Disadvantages
Separate legal personality which means the organisation could enter into contracts, hold property, employ staff and sue/be sued in its own name Filing requirements with Companies House (e.g. annual accounts and annual confirmation) 
Limited liability for members (up to the amount that they have guaranteed) Costs in setting up and meeting filing requirements (though these tend not to be significant)
Relatively easy to set up     Greater degree of regulation

Company limited by shares

If your club wishes to incorporate, but intends to distribute any profits that it generates to its owners, the most obvious legal form to adopt would be a company limited by shares.
In a company limited by shares, members hold shares in the company which carry certain rights to, amongst other things, dividends and voting.   The liability of the members to creditors of the company is limited to the amount of capital originally invested by the member ( i.e. the amount they have paid for their shares).  A member's assets are therefore protected in the event of the company's insolvency but any money invested in the company may be lost.  
Similarly with companies limited by guarantee, companies limited by shares are registered with, and regulated by, Companies House.

Advantages Disadvantages
Similar benefits to becoming a company limited by guarantee save that a member's liability is limited to the amount of their investment rather than the amount they have guaranteed Similar disadvantages to becoming a company limited by guarantee
Can assist with tax planning (although specialist tax advice should always be sought) Not well suited to not-for-profit organisations

Limited company with charitable status

A limited company may apply to OSCR for charitable status.
This would allow an organisation to enjoy the benefits of incorporation (e.g. separate legal personality, limited liability etc) as well as those which come with charitable status.  It is not, however, without its disadvantages, perhaps most notably that a limited company with charitable status is regulated by both Companies House (in respect of the limited company) and by OSCR (in respect of the charity) which results in an increased amount of administration.
Since the introduction of SCIOs (see our summary below), it is less common for clubs to incorporate as a limited company if they are also intending to apply for charitable status.   
 

Advantages Disadvantages
Benefits of being both a limited company and a charity Regulated by both Companies House and OSCR which increases costs and burden of administration 
If you lose charitable status, the organisation would continue to exist as a limited company The process for obtaining charitable status can take time (at least three months)

Scottish Charitable Incorporated Organisation (SCIO)

A SCIO is relatively new legal form (introduced in 2011) which allows for charities to be incorporated but to be administered and regulated by a single body, namely OSCR.
SCIOs enjoy separate legal personality and the liability of the trustees of SCIOS is limited (in most cases).  In addition, members are not required to contribute to the assets of the SCIO upon its winding up.
Removal from the charity register will result in dissolution of the SCIO.

Advantages Disadvantages
Benefits of being incorporated (e.g. separate legal personality and limited liability) and having charitable status  The process for obtaining SCIO status can take time (at least three months) 
Regulated by OSCR only and therefore less administration than for a limited company with charitable status Removal from the charity register will result in dissolution of the SCIO

Community Amateur Sports Club (CASC)

Local amateur sports clubs have been able to register with HMRC as CASCs since April 2002. Registering as a CASC enables the club to benefit from a range of tax reliefs that are similar to those available to a charity, but not as extensive.

It is important to note that CASC status is separate from a club's legal form and provided its constitution meets the registration requirements, a club may adopt a number of different legal forms including an unincorporated association or a company limited by guarantee.  However a CASC cannot be a charity and therefore will not enjoy the benefits that charitable status brings.

Advantages Disadvantages
Tax benefits including exemption from corporation tax (in certain circumstances), gift aid and business rates relief  CASC status is separate from  a club's legal form and consideration would still need to be given to the correct form which should be adopted by the club 
Limited regulation by HMRC Number of restrictions as to who can apply for CASC status 

Sole trader

Some clubs may be operated for profit by one individual.  This individual is known as a "sole trader".
When a sole trader enters into contracts, acquires property or employs staff, they are doing so in their own name.  This does of course mean that if any liability arises under such arrangements, the sole trader will be personally liable.
 

Advantages Disadvantages
Easy to get started  Personal liability for the debts of the business 
No regulator other than making tax returns to HMRC May be difficult to obtain funding other than commercial lending 

Partnership

In a business partnership, two or more individuals (known as partners) would personally share responsibility for the business and the profits arising from it.
It is not necessary for the partnership to be governed by a written agreement although this is recommended to ensure clarity amongst the partners as to their respective rights and obligations. 
Whilst a partnership in Scotland has separate legal personality, partners remain "joint and severally" liable for the debts of the partnership which means that a debt could be enforced against one of the partners and not necessarily all of them (although the partner in question would ordinarily be entitled to relief from their fellow partners). 

Advantages Disadvantages
Easy to get started  "Joint and several" liability for partnership debts 
No regulator other than making tax returns to HMRC May be difficult to obtain funding other than commercial lending 

For additional support and advice contact Jacqui Stone, Scottish Gymnastics Club Business Manager

For SportScotland Legal Status information click HERE

Information on club constitutions and articles of association can be found HERE