SIMON
FACT
SHEET NUMBER 3
This fact sheet looks at
the organisation of an angling club and problems that can arise for those
responsible for managing club affairs.
Most clubs run as
unincorporated associations, but some run all or part of their operations as
limited companies. Whichever model
is used, the potential liabilities of directors or officers have to be
carefully considered, and the pros and cons of each approach weighed. Also, the relationship between the
company or club and its members has to be regulated.
This fact sheet looks at
the advantages and disadvantages of running a fishery as an unincorporated
association or a company, the liability of officers and directors, and the
relationship between the club and its members.
In common parlance this
phrase means clubs. Clubs are of
two sorts. Proprietary clubs are
those where the assets of the club are owned by an individual or company. The owners accept members and keep the
profits of the business. In
the case of members clubs, the assets are owned by the members, and any profits
are retained for the benefit of the members. Since virtually all angling clubs are
members clubs, this fact sheet only focuses on this type of club.
Unincorporated
associations are not recognised at law as a legal personality in the same way
as a company or an individual. This
means that they are no more than a group of individuals. First of all this has important
implications both as to the assets and liabilities of the club.
So far as assets
are concerned, what belongs to the club belongs to the members in equal shares,
unless otherwise provided by the rules.
All members are therefore entitled to share equally in the assets of the
club on its dissolution. Indeed,
there may be a danger of individuals seeking to claim shares of surpluses
acquired by clubs, e.g. compensation, rather than retaining these sums for the
benefit of the club, unless rules prevent this.
Liabilities are
also equally shared between the members.
Thus, if there was a deficiency of assets over liabilities, for example,
if there were not enough subscriptions to cover rents for fisheries or a legal case
was lost resulting in an order for costs, then the members of the club would
all be personally liable to satisfy the creditors of the club. Equally, if the club were found liable
for damage to a third party, for example for an injury caused by negligence not
covered by insurance, this would be a liability of all of the members.
This liability
is joint and several. This means
that each member is wholly liable for the sum claimed and a creditor can
therefore seek to recover all that is owing from just one member of the
club. If a member were to meet more
than his share of liability, then he would be entitled to an indemnity from the
other members of the club, but this may not be effective until after the liability
has been met.
It is important
to emphasise that this situation should not occur in a well run club, see
below, but equally important to be aware of the risks associated with
unincorporated associations when deciding how to run a fishery.
There are also
important issues for officers of angling clubs to be aware of. Because the club has no legal
personality, see above, it cannot contract on its own behalf. This is particularly relevant in the
case of taking on leases or purchasing land. In order to get round the difficulties
of the club not being a legal personality, it is necessary to appoint trustees
who are authorised to hold assets on behalf of the club. This situation creates a potential
personal liability for the trustees, arising from, for example, the non-payment
of rent by the club for a fishery.
In order to
appoint Trustees, there has to be a Declaration of Trust which appoints the
initial Trustees and defines what assets they can hold and the basis on which
they do so. Generally, the Trustees
will be officers of the club.
Whenever there is a change of officers, there has to be a change of
trustee, which is dealt with by a Deed of Appointment and Retirement.
It is also
relevant in the case of issuing proceedings. The courts allow club proceedings to be
commenced by named members of the club “for and on behalf of all
members”. Whilst all members
are potentially liable for the costs of the litigation, it is possible that the
named individuals may attract personal liability.
In the above cases
it is sensible for the trustees or named individuals to ensure that they have a
suitable indemnity from the members of the club so that they can recoup any
personal liability they have incurred from the club assets. More generally it is sensible to include
a limitation in the club rules both to give officers and trustees an indemnity
and protect them from being sued by club members provided that they act within
the authority given to them by the club in its constitution. It is also possible to obtain insurance
against trustee liability.
Despite the
issues set out above, there a number of benefits to running as a club. It avoids the financial and
administrative burden of preparing annual accounts and returns for filing at
Companies House (see below), as well as other Companies Act requirements, see
below. It also avoids the initial
set up costs of purchasing a company and creating agreements between the
company and those who fish the waters.
In most cases, see below, the club will remain in existence in some
form, and a company format will therefore not be a complete solution.
At the end of
the day the club format comes much closer to meeting the real object of angling
clubs which is for local people to join together to enjoy the use fishing
rights that they would not be able to acquire themselves. The club model allows those local
people to be involved in the running of the club’s affairs and provides a
single organisation for dealing with all those affairs. By effective rules and sensible use of
insurance, many of the pitfalls set out above can be avoided.
If the club
decides to run its affairs as an unincorporated association, then there are a
number of steps that can be taken to reduce the risk of problems occurring
which have been mentioned above.
(a) The rules
of the association can be used to prevent moves by members to call for a
distribution of assets either on dissolution or earlier. This can be achieved by ensuring that the
majority required is sufficiently high to make it unlikely that such a
resolution would be passed. Also it
is possible to provide that assets should not be distributed to members on
dissolution, but should be given to a charity or some other angling body. It is also worth considering protection
against moves for rule changes to make distribution of assets easier by again
ensuring that a large majority vote is required to make any rule change.
(b) The rules
of the club should provide as a matter of course that trustees and officers are
not liable for actions they take on behalf of the club where that action has
been authorised by the club in accordance with its rules. Also the rules should record that the officers
and trustees should be indemnified by the club in respect of any personal
liability that they incur on the club’s behalf. It will be prudent to ensure that
important decisions of the club that involve a substantial investment or open
up the possibility of a future liability are minuted as approved by the
committee for the protection of the officers and trustees.
(c) Where
possible potential liabilities to third parties should be protected by
insurance. Public liability
insurance provides cover for liability to third parties such as members of the
public having accidents. Sporting
policies are available which offer protection against business
interruption. This could cover a
range of events that leave a club unable to use its fishery while continuing to
have the expense associated with it.
2. LIMITED
COMPANIES
Limited
companies are formed pursuant to the provisions of the Companies Acts. The most important feature of a company
is that its liability is limited. Companies can be limited by shares or by
guarantee. Generally, in the case
of non profit making companies, the guarantee route is taken. In this case the company has members who
each guarantee a nominal sum, usually £1, in the event that the company
is wound up. The liability is
therefore limited to the assets of the company plus the value of the
guarantee. In practice, in most
cases, the members of the company would be the same individuals as the trustees
of an unincorporated association.
A company is a
legal personality, and can therefore sue and be sued and can also enter into
contracts. All companies must have
directors who are responsible for running the day to day affairs of the
company. The company must also hold
an annual general meeting which members may attend. It must file an annual return and annual
accounts at Companies House.
There a number
of advantages of a company set up.
The most obvious is the limitation of liability. This means that an angling organisation
can enter into contracts, including leases, without the risk of personal
liability. Equally, the company can
sue and be sued without individuals putting forward their names and without the
assets of individual members being exposed.
There is however
a practical limit to the use of limited companies to enter into contracts and
to sue. In the case of leases of
waters with substantial rents, it is likely that the landlord will want to
protect against the possibility of the company not having sufficient assets, by
requiring individuals to guarantee the obligations of the company, or,
possibly, requiring a rent deposit to be paid. In the case of litigation being brought
by a company, there are some circumstances where the courts will require a
company to pay money into court to cover the likely amount of the costs if it
considers that the company will not have sufficient assets to meet those costs
at the end of the case if it loses.
A second
advantage is that the company can enter into contracts including leases on its
own behalf without having to appoint trustees to do this on its behalf. Linked to this is the benefit that the
limitation of liability enjoyed by the company means that it does not expose
the individual members to ultimate unlimited liabilities, in the event that
things go wrong.
It also reduces
the potential exposure of officers who might have personal liability for their
actions in a club situation, or who lend their names to actions on behalf of
the club. Also, it removes the risk
of personal liability of individual members for the debts of an unincorporated
association. It is a basic feature
of companies that it is not possible to go behind “the veil of
incorporation”, and establish personal liability against individuals who
are officers and members of the company except in certain, very specific,
circumstances set out in the Companies Acts. Broadly speaking, it requires dishonesty
on the part of a company’s officer for this to happen.
A third
practical advantage is that as the company exists for all time it is not necessary
to enter into a deed of appointment and retirement as is the case with a change
of trustees. Linked to this, it
avoids the need to transfer registered titles from the old to the new trustees
at the Land Registry.
There are
however disadvantages in using the company framework. There is an initial cost in acquiring
the company and putting in place the necessary documents to regulate the
relationship between the company and the club if there continues to be one. The documents governing the way a
company is run are known as the Memorandum and Articles of Association. These documents set out the objects and
powers of the company, as well as regulating the way it does its business. They can be amended to reflect the
particular requirements of the angling organisation involved.
There can also
be an initial cost in altering the documents of title to the fishing from the
names of the club/trustees to that of the company. The overall set up cost could be anything
between £500 and £2,000.
There is also an
ongoing administrative burden in running a company. As indicated above, there is an
obligation to file annual returns and accounts at Companies House. Additionally, the company’s
register has to be kept up to date, showing changes in membership of the
company. Changes in director have
to be recorded and notified to Companies House. Annual general meetings have to be held. Finally minutes of the company have to
be maintained. To some extent these
obligations mirror what happens in a well regulated club. However, the burdens are greater in the
case of a company and can involve extra cost, for example, preparing audited
accounts for filing at Companies House.
A further
disadvantage of the company format is the fact that company information has to
be filed at Companies House and this information is publicly available. Thus, any member of the public can look
at filed accounts, and details of the companies directors and registered
office.
If it is decided
to form a limited company, a further decision has to be made as to whether the
former club will be wholly wound up or not. In practice, it is difficult to run the
whole of the angling operation within the company format and remain faithful to
the basic objective of most clubs namely, the provision of angling for a local
community. i.e. an angling club is
not first and foremost a business.
Therefore there
needs to be some machinery whereby members can continue to pay an annual
subscription, enjoy their fishing and be involved in the affairs of the
club. The unincorporated
association is particularly well suited to this objective as all members
automatically have an interest in the club. In the case of a company limited by
guarantee, it would require every member of the club to become a member of the
company. This would create a huge
administrative burden as each change in membership would have to be registered
at Companies House. Practically
speaking, some form of club has to remain in existence to run the day to day
affairs of running the fishery.
In most cases a
company would be formed in order to hold the assets of the club and, perhaps,
to make executive decisions as to the direction of the club, but the normal member
would continue to gain access to the fishing by paying an annual subscription
to the unincorporated association.
Thus the club would remain in existence but ownership of assets and some
risks would vest in the company.
Broadly speaking,
the steps set out under the heading “Avoiding risks” above apply
equally to the company format.
Obviously one of the main purposes of forming a company is to limit
possible personal liability of individual members. However, thought still needs to be given
to how to protect against attempts to cash in on the assets of the company and
what happens to the assets of the company if it is wound up. Equally, directors of the company need
to be sure that they have proper authority to take decisions if some form of
club remains in existence and will wish to seek indemnities against personal
liabilities. The advice as to
proper insurance is just as valid for companies.
It has been seen that there
are advantages and disadvantages to running a fishery through a company and by
an unincorporated association. Even
where companies are formed, generally some form of unincorporated association
remains in place.
As a general
rule the company option is likely to be more attractive to larger clubs with
substantial assets and potentially greater liabilities, when the cost and
administrative burden of running a company will be outweighed by the benefits
accruing.
Whichever model
is used, there are certain practical steps that can be taken to minimise
potential liabilities of members and officers of angling organisations.
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Please note that this
fact sheet is intended to give general guidance on the stated area of
law. We cannot accept any
responsibility for the consequences of relying on this fact sheet in relation
to particular circumstances of which we are not aware.
Simon Jackson Solicitors
The Office
Tyn Celyn
Llansilin
Oswestry
SY10 7JW
Tel: 01691 791439
Fax: 01691 791583
e-mail. srbj@btconnect.com