Playing By The Rules

“Leaving it all on the pitch” is not just a mantra; it’s an attitude. It’s a commitment to your club and teammates that nothing will go to waste and that every ounce of energy will be spent on gunning for victory over the opposition. That is sport.

All well and good, but as anyone who has been involved in running or organising a sport’s club will know that competitive edge, that instinct to win, that need to be one-nil up can spill over not just into the changing rooms but the boardrooms too.

Like many organisation, sports clubs, governing bodies and competition organisers are made up of passionate and enthusiastic people, but all too often that passion leads to disagreement, disagreement leads to conflict and conflict can ultimately lead to disputes and litigation. Within the sporting context this is all the more likely where clubs, leagues or pisions etc compete as much off the field as on the field.

Sporting organisations often operate within complex structures involving members, volunteers, players, committees, coaches, directors and other stakeholders all with differing interests and responsibilities. As a result, like any organisation, it is important for a sports organisation, no matter how informal they might believe themselves to be, to be clear about and understand the legal basis on which they are constituted, the pros and cons of the available structures, the mechanisms for resolving disputes and what liabilities they themselves might be exposed to.

Types of Structure

There is no single structure suitable for all sporting organisations. The most appropriate structure will depend upon factors such as the organisation's objectives, membership base, funding arrangements, regulatory requirements and long-term ambitions. Set out below are some structures and their respective advantages and disadvantages.

Company limited by guarantee

A company limited by guarantee is a popular choice for not-for-profit sporting organisations. Rather than having shareholders who own shares in the company, it has members who agree to contribute a nominal amount, typically £1, if the company is wound up. This limits the members' liability.

This structure is often attractive where there is no requirement for shareholders to receive pidends. It allows management of the organisation to be separated from its membership through a board of directors, whilst the organisation's assets are owned by the company itself rather than by inpidual members.

Companies limited by guarantee are governed by the Companies Act 2006, which provides members with a range of statutory rights and protections.

Company limited by shares

A company limited by shares is similar in most respects to a company limited by guarantee but has shareholders who own specified shares in the company.

This structure is commonly used where there is a commercial element to the organisation or where investment may be sought. Ownership is determined by shareholdings and shares may carry rights relating to voting, pidends and capital distributions.

For sporting organisations, this structure may be useful where a commercial trading arm exists, allowing revenue-generating activities to be carried out separately from the sporting or community-focused aspects of the organisation.

As with companies limited by guarantee, companies limited by shares are governed by the Companies Act 2006.

Partnership

A partnership is established between two or more people carrying on a business in common, usually for profit. The relationship between the partners is typically governed by a partnership agreement, which sets out matters such as management responsibilities, decision-making processes, profit sharing arrangements and exit provisions, alongside the Partnership Act 1980. The Partnership Act 1980 contains far less rights for members in comparison to the Companies Act 2006 and so allows for flexibility. However, a partnership is not a separate legal entity from its partners and so partners are generally jointly and severally liable for the debts and liabilities of the partnership, making this structure less attractive from a risk management perspective.

Limited liability partnerships

An LLP combines many of the operational flexibilities of a partnership with the benefit of limited liability.

Unlike a traditional partnership, an LLP is a separate legal entity, meaning that members are generally not personally liable for the LLP's debts beyond any amount they have agreed to contribute.

An LLP can therefore provide a useful balance between flexibility and liability protection.

Community interest companies (CIC) and Charities

Certain organisations may qualify as a CIC or charity. These structures can provide access to grants, funding opportunities and tax advantages, whilst demonstrating a commitment to community or public benefit. However, both structures come with additional legal and regulatory obligations and restrictions.

Organisations considering either option should carefully assess whether they meet the relevant eligibility requirements and whether the advantages outweigh the additional compliance obligations.

Unincorporated associations

Many amateur sports clubs begin life as unincorporated associations. This structure is relatively straightforward and inexpensive to establish, making it attractive for smaller organisations. However, an unincorporated association does not have a separate legal identity from its members. This can create uncertainty around governance, ownership of assets and contractual arrangements, and may expose members or officers to personal liability.

Governing Documents

Whatever the legal basis of your organisation, members must be clear about their obligations and rights, any disciplinary procedures, dispute resolution and appeal processes. Such governance and procedures should be clearly set out within the appropriate documents. The key governing documents commonly used by sporting organisations are outlined below.

Articles of Association

Articles of Association are legally required for limited companies and are filed at Companies House. They set out how the company is to be run and governed, including powers and responsibilities of directors and members. For sporting organisations, the Articles of Association will typically address matters including:

• The appointment, removal and powers of directors;

• The rights, obligations and voting powers of members or shareholders;

• The calling and conduct of meetings;

• Voting procedures and approval thresholds;

• The issue, transfer and alteration of shares (where applicable);

• Board and member decision-making procedures;

• Conflicts of interest;

• The treatment of profits or surplus funds; and

• How the articles of association themselves can be amended.

Membership Agreements

A membership (or a shareholder’s agreement or partnership agreement, depending on structure) is not mandatory but often highly recommended. Unlike Articles of Association, it is a private document entered into directly between the members and can contain additional provisions that the organisation may not wish to make publicly available. A membership agreement can regulate matters such as governance arrangements, member conduct, voting expectations, dispute resolution procedures and how members exercise any statutory rights granted by legislation. Properly drafted agreements can reduce uncertainty and minimise the risk of future disputes.

Rule Books and Byelaws

Many sporting organisations also operate under a Rule Book or set of byelaws. These documents typically govern the day-to-day operation of the organisation and can often be amended more easily than constitutional documents such as Articles of Association or membership agreements. Examples may include rules relating to competitions, player conduct, disciplinary procedures, safeguarding requirements, membership categories, coaching standards and operational matters. It is common for constitutional documents to empower a board or committee to update these rules from time to time in order to respond to evolving sporting, regulatory or operational requirements.

Whether professional or amateur, the combined effect of any Membership Agreements, Articles of Association and Rule Book may be significant in forming the basis of a contractual agreement between the club or governing body and the members, and breach of which may lead to claims for damages, by engaging the supervisory jurisdiction of the courts.

Staying ahead of the game

Whilst taking the time to establish the right structure and governance framework from the outset is important, as sporting organisations grow and evolve, governance arrangements should be reviewed regularly to ensure they remain fit for purpose. It is invariably easier, and less costly, to identify and resolve governance weaknesses before a dispute arises than to address them once relationships have broken down.

Choosing the appropriate legal structure and ensuring that appropriate governance documents are in place can help organisations operate effectively, manage risk and allow those involved to focus on what matters most: the sport itself.

Should you wish to discuss any of the issues raised in this article please contact either Emily McFadyen or Saul Burton.

Emily McFadyen is an Associate in the Weightmans Corporate Team and specialises in corporate matters and supports a range of clients from inpiduals and start-ups to established companies, and assists with mergers, acquisitions, investments and corporate governance matters.

Saul Burton is a Legal Director in the Weightmans Sports Team and acts for national and domestic governing bodies, schools and colleges, professional and amateur sports clubs, and private companies in a wide range of sports including football, rugby, numerous motorsport disciplines, horse riding, athletics and mountain biking.