Most golf clubs are formed as unincorporated associations. This is the easiest, cheapest and the most informal way of forming a club. Upon joining such a club members acquire both rights and liabilities between themselves and the other members. It is generally the case that the liability of the individual member is limited to his entrance fee (if any) and his subscription. Responsibility and liability for transactions and activities of the club rests with the club's management committee. This is a serious disadvantage of an unincorporated association and members forming part of the management committee may find themselves personally liable for the club's debts and for any court actions raised against the club.
The best way of limiting this personal liability is to incorporate a club under the Companies Acts. Companies limited by guarantee are not permitted to have any share capital and the members of the company will give a guarantee rather than buying shares in the company which limits their liability to the amount of the guarantee provided, commonly £1.
Liability in respect of any debts of the club, litigation claims and the club's property will reside in the club itself, as opposed to the ordinary members or management committee. The club will find it easier to borrow money because a floating charge may be created over its assets. A company limited by guarantee may also be entitled to charitable grants or awards from public funds which may not be available to unincorporated associations. However, it should be noted that company legislation does impose certain statutory obligations.
Incorporation inevitably involves some additional costs, financial transparency and administrative burden, including the need to file annual accounts at Companies House. It should be noted that officers of the club may be fined if the requirements of the Companies Acts are not complied with. However, the advantages of incorporation as a company limited by guarantee are significant and should be considered carefully by the club's officeholders, particularly in relation to personal liability.
Ailsa Mapplebeck is an associate specialising in corporate finance with UK law firm Shepherd and Wedderburn