The limited company is an organisational structure which gives limited liability to its members. Some sports organisations take on the form of a limited company. However, this is a more accountable form than other company structures, for example, 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 gives a guarantee for 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 as set out in its governing document.
Company limited by shares (CLS)
The advatage of a company limited by shares is the shares make it easy for investors to invest in the club.
The issue with shares in a membership organisation is that each time a member joins a share has to be issued to them and each time a member leaves their share has to be transferred to somebody else or redeemed. The shares cannot be advertised and sold publicly.
A further issue with companies limited by shares for membership organisations is the control that share holders can exert. If anyone holds over 50% of the shares then they will be able to control the board and if they hold 75% of the shares then they are able to change its constitution and have complete control of the company.
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 company limited by liability 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 not be liable to other than the amount which each member has guaranteed to pay, typically £1 (unless they have broken company law).
The main drawback to being a company limited by guarantee is the administration required.
This includes filing annual accounts and directors details at Companies House and keeping these details up to date every time a director is appointed or removed.
In addition to this the Directors of the company (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 a company limited by guarantee because of the protection that the structure gives to members.
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