What business structure will work best for your out of school club? You need to think about how much personal risk you are prepared to take, what sort of funding you might need, how much paperwork you can tolerate, and your long-term objectives for the club.
The following are possible business structures that you could consider for your out of school club:
Sole trader, where your profits are taxed as your personal income. This business type is quick to set up and easy to run. You are still able to employ people as a sole trader. The disadvantages include a lack of support, unlimited liability and the fact that you are personally responsible for any debts run up by your business.
Partnership, allows you to set up in business with one or more other people whilst keeping a simple business structure. Partnerships are easy to set up and run, and the different partners bring a range of skills and experience to the business. On the other hand, problems can occur when there are disagreements between partners. You should draw up an agreement to formalise any partnership. Like being a sole trader, there is unlimited liability and you are personally responsible for any debts that the business runs up.
Limited liability partnership (LLP), has the benefits of a partnership, sharing resources and skills, whilst allowing partners to limit their personal liability for debts. However, the formation of an LLP is more complex and costly than that of a partnership and problems can occur when there are disagreements between the partners. Partners must comply with legal requirements, such as submitting audited accounts to Companies House.
Private limited company (LTD), limits your personal financial risk to how much you invest in the business and any guarantees you have given in order to obtain financing. Private limited companies are more expensive to set up than LLPs and require one or more directors and a company secretary. Directors of a limited company must comply with requirements of Companies House such as submitting annual accounts, holding meetings and maintaining the company's public records. Private limited companies cannot have charitable status.
Company limited by guarantee (LTD) is an alternative type of corporation used primarily for non-profit organisations that require a legal entity. A guarantee company can have charitable status. A guarantee company does not usually have a share capital or shareholders, but instead has members who act as guarantors. Directors have to comply with normal companies legislation, directors' liability is protected and the profits from trading have to be invested back into the business, and are not distributed to shareholders.
Community Interest Company (CIC), is a limited company with special additional features, created for the use of people who want to conduct a business or other activity for community benefit, and not purely for private advantage. The CIC Regulator has to approve the registration of a company as a CIC and ensures that it is established for community purposes and that its assets and profits are dedicated to these purposes. For more information about CICs visit www.bis.gov.uk/cicregulator.
Registered charity, with the club run by a management committee, formed by a group of volunteers—this may be the best option if you are short of funds, as it enables the committee to apply for grants from charitable trusts and foundations. The downside of becoming a registered charity is trying to get enough suitable volunteers to form the committee, and the paperwork that is generated. All members of the management committee have to be DBS checked (if your club is Ofsted-registered) and you must also register with the Charity Commission.
In response to the some of the issues faced by small charities such as out of school clubs the Charity Commission has recently introduced a new charity structure called a charitable incorporated organisation (CIO). See our article on CIOs for more information.
Co-operative is a business owned and controlled by their members—the people who use it. In simple terms it is owned by its customers. Co-operatives are formed and managed to meet the needs of its members. A board of directors is then elected from within the membership.
Social enterprises are businesses trading for social and environmental purposes. Social enterprises are distinctive because their social purpose is absolutely central to what they do: their profits are reinvested to sustain and further their mission for positive change. Social enterprises can use a variety of legal structures including:
- Community interest company
- Company limited by guarantee
- Registered charity
For more information on social enterprises, visit the website for the Social Enterprise Coalition.
More information on business structures
The former Business Link pages are now part of the .GOV.UK web site and provide useful business support, including a more detailed overview of the different legal structures for businesses.