Equity

Most sports clubs are unable to offer equity because they have legal structures which don’t allow it or don’t have a legal structure at all

Only clubs structured as companies ‘limited by shares’ or societies registered with the Financial Conduct Authority (FCA) and with the right clauses in their constitutions are able to issue equity.

If they have the right legal structure, clubs can sell shares to investors (including club users) and those people then take rights in the club. Those rights can be over the future profits (dividends), over the governance of the club (through voting power at AGMs) and depending on the shares and whether they are able to be sold on, capital gains when they sell those shares on for more money than they paid to buy them in the first place.

Laws and regulations

Company Law is very flexible and so clubs can create structures which are tailored for their circumstances. You could have different classes of membership in return for certain rights; club members could have most of the voting power over the club, while outside investors could have priority for financial returns.

Some things to think about:

  • While flexible, the law governing companies with share capital is built around protecting investors who seek to achieve a financial return and so social purpose can be harder to enshrine. Clubs seeking to balance the sporting mission with rewarding investors could look at becoming a Community Interest Company to do this. However, once rights have been given they are difficult to remove, and selling equity in a ‘standard’ company structure can start a process that can see control move away from the club’s participants or users.
  • In addition, there are laws and regulations governing offering share capital to the general public that can make it hard for clubs to use these methods cheaply or without risk. While exemptions exist for companies raising less than £150,000 from fewer than 100 people, or where there is already an existing member base in a relationship with a company (such as club members), clubs should take professional advice to ensure that they don’t inadvertently commit criminal offences, which can also lose their Directors the benefit of limited liability.