This will enable the responsibilities and financial liabilities to be taken on. It also not only serves to safeguard the organisation and the individuals running it, but to also ensure that private individuals don’t benefit from the transfer and to give funders and other partner organisations confidence that they can invest their time and money in the transfer.
You may already be a sports club. You may be an existing charity with a different purpose that now wants to move into sports provision and needs to change its objectives. You may even be a private company that needs to take on a not-for-profit status so that you can receive an asset transfer.
Four routes to being ready
There are four routes to becoming organisationally-ready for an asset transfer:
- An existing club or constituted community group changes its legal structure through ‘incorporation’. This process creates a separate legal identity for the group and limited liability for individuals involved in running the club. It also makes it easier for the club to raise funding, especially a mortgage or other loan finance
- An existing community organisation or enterprise changes its governing document to make sports provision part of its objectives or purpose
- An existing private sports company changes its legal structure or sets up a not-for-profit subsidiary so that a Local Authority can transfer an asset without benefitting private individuals
- A community establishes a new organisation because there are no existing suitable organisations or clubs to take on the asset. This is most successful if done with the support of the local authority.
You don’t need to be an incorporated organisation to begin negotiating for an asset transfer, but eventually you will need to be a constituted group which has some sort of democracy and accountability to the community you are negotiating on behalf of.
A local authority won’t usually speak to a group of residents with no formal structure at all, so the first thing you need, if you don’t have one already, is a constitution. This sets out the rules by which you make decisions, who can be a member, what your purpose is and your ‘area of benefit’ – the community or area you represent and the powers you have as a group.
If you are already an established sports club or constituted community group, asset transfer might represent the first time you have taken legal responsibility for an asset, or employed staff. If this is the case you need to check your existing governing document to confirm that you have the powers you need to sign a lease, take out a loan, and employ staff and so on.
Your governing document
Your governing document – constitution for a charity or memorandum and articles of association for a company – will contain details of how the constitution can be changed. This will either be as a result of a meeting by the trustees/directors and a vote of those present or by a meeting of the membership and a vote.
It is important to check that changes are carried out properly. If in doubt you should get advice from your local Council for Voluntary Services or a legal professional or the appropriate regulator, i.e.: the Charity Commission or Companies House.
Every voluntary or community organisation in law must adopt a recognised legal structure.
Whatever structure is chosen, the governing document, which sets out the purpose and rules for operating the organisation, must ensure that the organisation is not-for-private-profit and that there is an ‘asset lock’ which prevents the organisation disposing of its assets for the benefit of private individuals (including the clubs’ members).
An important decision for a new group or an unincorporated association is whether to incorporate.
Incorporation gives the group its own separate legal identity. It is unlikely that a public body will transfer its assets to a constituted group of individuals without a separate legal identity. Incorporation also limits the personal liability of the individuals involved.
Incorporation is highly recommended for any club or community sports organisation that intends to employ staff, take on significant property interests or undertake major contractual obligations.
There are several possible incorporated legal structures currently available, most commonly:
- Company Limited by Guarantee (with charitable status)
- Community Interest Company (CIC)
- Community Benefit Society
- Charitable Incorporated Organisation.
Deciding on which type is most appropriate is crucial and should be given significant thought. Each structure has its own set of strengths and weaknesses. More research should be done before making a decision. Your local Council for Voluntary Service can usually help with advice and it is useful to take legal advice as well.
Avoid making rash decisions. The structure you choose cannot be changed easily and could last many years. Consider what levels of flexibility you might need. Your early decisions will be difficult and costly to reverse.
Charitable purpose is a legal status that the organisation either has or has not and is dependent on the organisation’s purpose, not its legal structure.
Registered charity status has certain tax benefits, which includes tax efficient ways to maximise donations made through the Gift Aid scheme.
A charity always has an ‘asset lock’ which prevents the disposal of any of its assets being sold for private profit. Inherent within the charity structure is also a common means of managing the risk that the value of any public asset may be privately appropriated.
Charitable purpose is enshrined in a charity’s governing document.
Registration is with the Charity Commission.
Some funders insist that grant recipients must be registered charities.
The ‘advancement of amateur sport’ is one of the legally recognised charitable purposes, so if you wish to register as a charity you need to include this purpose in your governing document. Other relevant charitable purposes for community sports organisations are the advancement of health, the advancement of environmental improvement and the advancement of citizenship.
If you decide to follow the route of obtaining charitable status, it is recommended to seek professional advice first.
There are some restrictions on how and how much charities can trade – meaning generating income through the sale of goods and services. The trading that a community sports organisation could do includes paid coaching courses, renting out facilities, running a café, etc.
Trading for the ‘primary purpose’ of the charity is permitted as long as profits are used wholly for the charitable purposes of the organisation. Primary purpose trading will not give rise to tax liabilities. ‘Ancillary’, ‘non-primary purpose’ and ‘mixed’ trading are subject to a range of accounting and tax treatments.
In addition, if you are already a charity, trading may not be permitted under your existing registered charitable constitution. So when developing a business plan, you need to check that you have the power to trade.
Where there is substantial risk to the charity through trading, a separate trading company may need to be established. Trustees should seek advice before making decisions.
Community Amateur Sports Clubs (CASC)
Sports clubs that do not want to register as a charity or are advised not to could apply to HMRC to register as a Community Amateur Sports Club (CASC) to access special tax reliefs, including the Gift Aid scheme.
The Charities Act provides that an organisation that is registered with HMRC as a CASC which is set up for charitable purposes cannot be a charity. This means that an organisation advancing amateur sport can be registered as a charity, or registered as a CASC, but it cannot be registered as both.
To qualify as a CASC the club must have as its main purpose the provision of facilities and the promotion of one of 113 eligible sports. It must be open to anyone, it must not discriminate in any way in the provision of services to its members, it must be amateur, which means its players cannot be paid a wage and all the profits are reinvested back into the club.