For several national governing bodies of sport, commercial activities and sponsorship will be a major income source and will in some cases be the activity that is essential to the organisations survival.
However, this is dependent on the chosen organisational structure (limited company, charity or unincorporated association).
Organisations structured as a charity will, when compared to limited companies, enjoy considerable advantages when it comes to VAT – where certain sales and purchases are zero rated or exempt from VAT.
These advantages, however, come with a cost as charities are more or less free to trade in pursuit of their charitable objectives but restricted in engaging in commercial-oriented trades which involve significant risks.
If a charity wishes to engage in commercial activities and income generation they will in many cases have to be placed in a trading subsidiary.
In many cases, even where trading is not restricted but involves significant risks, it might be useful to place the commercial activities in trading subsidies to protect the parent charity.
Setting up a trading subsidy will involve extra management resources and other costs making it less favourable to companies with small budgets.
Unincorporated associations will be free to trade as a company but will have restrictions in relation to managing risk and ownership of assets.
For an unincorporated association to take on loans or take up ownership of commercial assets – all members of the association will have to sign up and all members of the association will also be liable in case of bankruptcy.
Limited companies are best designed for income generation and commercial activities as the organisation will have a separate legal identity and members will, therefore, only be liable with the guaranteed capital.
It will also be able to trade on equal terms as other limited companies.
Organisations structured as a limited organisation will, in many cases, still wish to separate the commercial activity from the organisation itself.
This ensures that in case of bankruptcy or other financial claims it will only affect the commercial part of the organisation and the rest will be safe to continue its activities.
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