The limited company is an organisational structure which gives limited liability to its members. Some sports organisations are set up as limited companies which is a more accountable form than other company structures eg an unincorporated association.
There are two incorporated forms to choose between when setting up as a limited company:
- Company limited by shares (CLS) – shareholders each hold shares in the company. Their liability is limited to the amount unpaid on shares they hold. A public limited company (PLC) differs from a CLS in that its shares can be sold to the general public.
- Company limited by guarantee (CLG) – each of the members guarantees a certain sum that will be put towards the company's finances if the company is wound up. A CLG cannot raise finance by issuing shares nor pay dividends to its members.
Every limited company is governed by a board that takes overall responsibility for its work. The board is responsible for the governance of the organisation – ensuring it is effectively and properly run and is meeting its overall purposes in accordance with its governing document.
Company limited by shares (CLS)
The advatage of a CLS is that this structure makes it easy for investors to invest in the club.
With respect to the issue of shares within a membership organisation, each new member is issued with a new share and when a member leaves, his/her share must be transferred or redeemed. Shares cannot be advertised nor sold publicly.
In addition, shareholders can exert control insofar as anyone holding over 50% of the shares can control the board or with a 75% shareholding can change itx constitution with total control of the compnay.
For these reasons a more suitable limited company for membership organisations is the limited by guarantee model.
Company limited by guarantee (CLG)
The advantage of a CLG is that the company assumes a separate legal identity. This means if it becomes insolvent or a claim is brought against it then the members will only be liable for the amount which each member has guaranteed, usually £1 (unless they have broken company law).
The main disadvantage to a GLC is the administration involved. This includes the filing of annual accounts and directors' details at Companies House and keeping these details up to date upon the appointment or removal of a director.
In additio, the company directors (the board members) have duties and responsibilities in company law such as:
- the duty to promote the success of the company
- to act in the best interests of the company
- to comply with its Articles of Association.
Regardless of these drawback, most sports organisations form as CLGs because of the protection granted to its members.
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