INCORPORATION - CONSULTATION PAPER FOR CLUBS
The County Executive Committee has been considering the issue of whether we should become a Company Limited by Liability or remain as an Association with Directors Insurance.
In this litigious age, Clubs and Counties are increasingly likely to be sued should an accident happen. The senior Executive Committee members were at risk of personal liability and this risk has caused caution in joining the Committee as a volunteer. In response to this concern the Executive Committee has taken out Director’s insurance, but this does not protect individual members. Therefore in the event of a claim being made, all members of the Association will have equal liability. There is no insurance that would prevent such a claim.
Advice from England Golf is that all Associations should consider this issue and should consult its members to see what level of risk the members wish to accept.
This summary is based on the Incorporation Guidance provided by England Golf lawyers to Counties, the full version is available should any of our clubs or delegates wish to read it.
A County Golf Association which is not incorporated is an unincorporated association of its various members. As such, the Members and Committee Members may be personally liable for the debts of any claims against the Association.
As an unincorporated association cannot hold property in its own name. An unincorporated association cannot generally contract in its own name and cannot sue or be sued in its own name.
A company can both contract and hold property in its own name and can sue and be sued in its own name.
Directors of a company generally have the protection of limited liability and will only be liable personally if they have committed wrong doing or if they have allowed the Company to continue to trade while insolvent.
The Members will also generally have the protection of limited liability. In particular, with a company limited by guarantee, the liability of the members is limited to the value of the guarantee as set out in the articles of association usually at £1.
An unincorporated Association is not generally subject to any outside scrutiny and its constitution and finances are private. Companies, on the other hand, are regulated under the Companies Act and must file certain documents at Companies House including the Memorandum and Articles of Association, its annual Confirmation Statement and Statutory Accounts. Documents filed at Companies House are open to public inspection.
It is generally considered beneficial for any entity which employs staff, owns property or enters into material contracts to incorporate to limit exposure to personal liability.
Whilst we do not employ staff or own property the Association owns trophies and therefore has assets in our name. Similarly, the members of the Association have assets.
What we will never know, is what level of risk we would expose ourselves to and whether we would ever likely be sued. Therefore, the risk could be theoretical.
As an Association, we are here to promote women and girls golf and develop golf for all ages and abilities. All roles are done on a voluntary basis with no remuneration being paid. As an Association, we are not a profit-making organisation and work on the basis of ‘breaking even’ each financial year. Therefore, it could be argued that we are not a commercial organisation. The additional work involved might suggest roles cannot then be completed just on a voluntary basis.
Potential costs would include legal advice to formulate Articles of Association (initial quote is £2500 as a one off fee), support from a firm of accountants (not yet established) and annual costs to Companies House of £250. The insurance saving is not substantial, therefore we would have to accept a one off cost to incorporate then additional charges of £250 per year.
The Executive Committee in 2019 undertook this review and was in favour of exploring incorporation with the members, but COVID and the disruption last year prevented completion of this work. The new Executive has reconsidered this issue and is in favour of proceeding to incorporation, but we need to ensure that Clubs feel that they are fully informed and consulted with in support of this decision.
By circulating this paper, we wish to begin a process of consultation with all our member Clubs in the two Counties and therefore, we ask Delegates to share this paper with Clubs to ensure time to consider the proposition.
If the consultation with clubs appears favourable to incorporation, the Executive Committee wish to engage legal advisers to work on the Articles and Rules and to prepare the way to incorporate a company.
Our Constitution states that any resolution for the dissolution of the Association shall be passed by a majority of two thirds of the votes recorded at a General Meeting. If such a resolution is passed, the Executive Committee shall immediately or at a date specified in the resolution, begin to realise the property of the Association. After discharge of all liabilities, the Association shall transfer the same to the new Company.
Following incorporation, member Clubs would sign up to become Voting Members of the new Company by way of an invitation and acceptance or affiliation process. This does not affect the partnership we have between Worcestershire and Herefordshire Ladies as this would remain intact.
If clubs accept this proposal and we are supported to call a General Meeting this would be undertaken at year end in August.
Appendix 1 Key Elements required (extracted from the full guidance)
1. The incorporation process
1.1 A sub-committee or steering group may be beneficial to consider all the documents and to drive the process. We would recommend seeking appropriate legal advice at an early stage to assist you and can recommend our preferred firm of advisers, if required. This paragraph sets out some of the considerations that will be required in relation to the structure of the company.
1.2 Review the constitution of the existing unincorporated body. Does the constitution contain power to dissolve and/or transfer the assets to another body? If not, a resolution of the members will be required to amend the constitution prior to the transfer of the assets and undertaking.
1.3 Identify the assets, liabilities, contracts and employees of the existing unincorporated body and any potential issues with transferring them to the new company.
1.4 Decide on the structure and make-up of the board of directors of the new company.
1.5 Decide on the membership of the new company (including any different classes of members).
1.6 Review the precedent Memorandum of Association and Articles of Association and decide on any changes required.
1.7 Review the precedent Rules and decide on any changes required.
1.8 Gather the information required for the first directors, secretary and subscribers (i.e. the first members of the company).
1.9 Complete Form IN01 and file this with the Memorandum of Association and the agreed version of the Articles of Association at Companies House. Form IN01 can be downloaded from Companies House website but it may be beneficial to seek legal advice in respect of the incorporation documents and process.
2.1 When the contracts, assets and liabilities of the existing County Golf Association have been identified, but before any steps have been taken to incorporate or transfer any assets to the new company, advice should be taken on the tax implications of incorporation. Generally, if there are few assets and liabilities, there will be no tax consequences, but it is important to check. It will normally be possible to effect incorporation as a reconstruction on a no gain, no loss basis. Clearance should be sought from HMRC in respect of Corporation Tax on capital gains and, where appropriate, on the preservation of mutual trading status. If the County Golf Union/Association owns property assets, these are likely to require legal transfer and if any are subject to a mortgage or legal charge which is to be transferred to the new company stamp duty land tax may be payable.
2.2 Advice from your tax adviser is recommended.
2.3 In due course, HMRC will need to be informed of the details of the new company and the transfer of assets and undertaking to the new company. VAT arrangements will also need to be addressed.
3. Invitation and acceptance
3.1 The template Articles provide that, subject to completing an application in required format, members of the unincorporated County Golf Association automatically become members of the new Company. Clubs need to sign an application to evidence agreement to be bound by the Articles of Association and any Rules and Regulations made pursuant to the Articles. This can be done by Clubs signing a form of Invitation and Acceptance or as part of a re-affiliation process.
4 Transfer of undertaking and assets
4.1 The constitution of the County Golf Association will need to be checked to see what is required to authorise and approve the transfer of the undertaking and assets. If this is not provided for in the constitution it may be necessary to amend the constitution as a preliminary step, if permitted. Depending upon the terms of the constitution, the transfer will require approval by resolution in general meeting or by resolution of the Executive Committee or a combination of the two. It is common for a simple transfer agreement to be required which would identify all the assets and contractual arrangements to be transferred, although these agreements can become more complex if the County Golf Association has numerous assets and/or employees etc. Which we do not.
4.2 The County Golf Association will need to resolve to incorporate and to transfer its assets, liabilities and undertaking to the new company. A precedent transfer agreement is available in the guidance, but legal advice should be taken on the terms of the agreement and what is required. The precedent provides for assets to be transferred "for value". This point, and its implications, needs to be considered with advisers and addressed. There may be a surplus left in the Association after transfer and, subject to the terms of the constitution, that will need to be passed to the new company.
4.3 The new company will need to hold a meeting of its directors to resolve to accept the transfer of the business and assets of the unincorporated association and to agree ongoing administrative arrangements.
4.4 Legal advice should be taken in respect of the transfer of freehold or leasehold property and in respect of the transfer of any intellectual property such as trademarks or copyright.
4.5 All contractual arrangements need to be clearly identified and discussed and novated or renewed in the name of the new company. All major contracts should be discussed with the other contracting party in advance to ensure that no contractual problems are created by the incorporation.
4.6 All insurance arrangements will need to be discussed and agreed with the insurers or brokers in advance.
4.7 A new bank account will be required for the new company.
4.8 Transfer of any investments, preparation of new stationery, registration under the Data Protection Act and the General Data Protection Regulations and any pension arrangements will also need to be addressed.
4.9 In the precedent Articles there is no provision for the appointment of a company secretary and there is no statutory requirement to appoint a company secretary. It is, however, important to ensure that the role and responsibilities of a company secretary are delegated to and carried out by one of the officers of the Company to ensure that the proper administration of the Company is carried out and that all necessary filings are made at Companies House.
(i) Articles 27 to 29 deal with membership and are important to establish the members of the Company and the legal relationship between the members and the Company. It is generally important that the members of the Company after incorporation are the same as the members of the County Golf Association immediately prior to incorporation.
(ii) If voting membership is limited to clubs the subscribers to the Memorandum of Association should subscribe (or any new voting members should apply) on behalf of their clubs or the wording of Article 27 may need to be amended.
(iii) Those entitled to vote at the annual general meeting or annual council meeting of an unincorporated County Golf Association should indicate who the voting members of that Association are and who should therefore become the Voting Members of the Company.
(iv) The annual general meeting of an unincorporated County Golf Association allows the club delegates to vote, the delegates will become the Voting Members in the new Company. Where affiliated clubs nominate a person to attend the delegates meetings, it is the affiliated club which should be the Voting Member not the individual who attends the council meetings.
(v) An unincorporated club can be a member of the new Company.
(vi) Voting Membership may be limited to affiliated clubs in which case all other members will be Non-Voting Members.
(vii) Membership categories (including the requirements for membership, the rights, privileges and obligations of each category of member) should be set out in the Rules.
(viii) 'Voting Members' and 'Non-Voting Members' are defined in Article 1.
(ix) Article 27 provides that the Board has the power and discretion to admit members.
4.9.2 Affiliation Fees
(i) Article 28.2 of the precedent Articles provides that affiliation fees are set by the Board but details of the fees and arrangements for payment and collection should be covered in the Rules. The Articles could provide for affiliation fees to be set by the Members in general meeting or an annual general meeting, or that they are to be approved by the members at the annual general meeting but, commercially, it makes more sense for the fees to be set by the directors as they are responsible for the administration and finances of the Company. Membership categories and the affiliation fees relating to membership categories should be set out in the Rules.
(ii) Article 29 deals with termination of membership whether by resignation, expulsion or non-payment of affiliation fees. Article 29.3 provides that a member whose affiliation fee is more than six months in arrears is deemed to have resigned automatically but gives the Board a discretion to vary that.
4.9.3 General Meetings
(i) Although there is no legal requirement to hold one, the precedent Articles provide for the holding of an annual general meeting every year in the usual way. The holding of an annual general meeting is considered to be an important part of the operation of a body such as a County Golf Association. The suggested arrangements are set out in Article 30 which can be tailored to suit the particular requirements of any County Golf Association.
(ii) Article 31 sets out the arrangements for convening a general meeting. 21 days' notice is specified but that can be reduced to, say, 14 days if preferred.
(iii) At Article 33 there are options for the quorum for general meetings which are either six Voting Members or 20% of Voting Members entitled to attend. Consideration needs to be given to the percentage or to the number of Voting Members required to attend. Whilst it is important to have meaningful attendance, the quorum should not be so large as to mean that meetings cannot proceed to business because of the lack of a quorum.
(iv) The Articles assume that the only Voting Members are the affiliated clubs and that it is only the Voting Members that are entitled to receive notice of, attend and vote at general meetings. The Articles assume that each Voting Member is entitled to one vote. If voting rights or rights to receive notice of and/or attend meetings are to be different, that will need to be provided for.
(v) Voting will normally be by way of show of hands. However, voting can also be by way of poll, postal ballot or written resolution.
(vi) It is important to note that a Member who is entitled to attend and vote is also entitled to appoint a proxy to attend and vote in his place. Arrangements in respect of postal ballots, polls and proxies are set out in the Articles. A precedent Form of Proxy is provided at Appendix 7. Requirements in respect of written resolutions are set out in the Companies Act.
The Companies Act permits a company to offer a wide indemnity to its directors and for them to purchase insurance and this is carried into the Articles in Articles 46 and 47.
It is important that the Articles set out what happens to any surplus monies on a winding up or dissolution of the Company. This is dealt with in Article 49 which provides that any surplus shall go back to the Voting Members. This is a requirement to enable the Company to claim the benefit of mutual trading but can be an issue if the Company wishes to apply for rating relief and some types of grant.