Choosing the Right Business Structure for Your Out of School Club

When it comes to choosing a business structure for your out of school club, there are quite a few factors you will need to consider, such as  - the funds you will need, the extent of personal liability you are willing to take, your long term expansion and the management responsibilities and paperwork you can undertake.

In this article, we’ll take a look at the different business structures suitable for out of school clubs, and the pros and cons of each:

Sole Trader

This is the most common type of business structure for small businesses. You own the business, and you can work alone or employ other people.

 Pros

• The business set-up is quick and simple
• You get to keep all the profit you make from your club (after you have paid tax on it)

 Cons

• Unlimited liability, which means you will be personally responsible for any losses you make in the business

Partnership

 A partnership is when two or more people own the club and share the income generated from it. Each partner will have equal responsibility towards the business and its operations.

Pros

• The business set-up is quick and straightforward
• Unlike being a sole-trader, you will have more support in running the business as you can bring in people with diverse/complementary skill-sets

Cons

• Unlimited liability. All partners will be personally responsible for any losses the business might make

Limited Company

If you register your club as a Limited Company, your club is treated as a separate legal entity with its own legal rights and obligations, separate from yours, as the director or shareholder of the business.

Pros

• The most significant advantage of being a Limited Company is you will not be liable for all your business dealings (as in the case of being a sole trader). As your company is treated as a separate entity, there is no risk to your personal assets. Each shareholder’s liability is limited to paying the value of the shares they own the company, which could be a purely nominal amount

 

Cons

• As you will have to incorporate your business with Companies House, there will be more paperwork, reporting and management responsibilities

• Your company cannot have a charitable status, which means you cannot apply for funds or grants from charitable trusts or foundations

Many out of school clubs start off as sole traders but register their company name with Companies House to protect their brand. The company will remain dormant while they operate as sole traders. This is a good option if you want to protect your club’s brand until you are ready for additional responsibilities.

Limited Liability Partnership (LLP)

Going for a Limited Liability Partnership allows you to enjoy all the perks of a partnership while letting you limit your liability if your business runs up a debt.

 Pros

• Allows you to limit your personal risk

Cons

• Setting up the company is more expensive and demanding in terms of paperwork
• This set-up is likely to pose problems if you have any disagreements with your partners

Company Limited by Guarantee

This is a business structure widely used for clubs operating as non-profit organisations or community projects.

 Pros

• Limited Liability
• Can have a charitable status, which means, you can apply for grants from trusts and charitable organisations

 Cons

• Cannot have a share capital, which means, your fund-raising capacity will be limited as you cannot issue shares to those who want to back and join your club
• The profits from the company will have to be re-invested into the business and cannot be distributed among the partners

Registered Charity

If you register your club as a registered charity, it will have to be run by a group of volunteers who will form a management committee. Your club must be registered with the Charity Commission, and all members of the committee will have to be DBS checked if your club is Ofsted registered.

Pros

• Ideal if you have a shortage of funds

 Cons

• Difficulty in recruiting volunteer for the committee

Community Interest Company (CIC)

 This is ideal if you are operating your club for a social purpose or as a service to the community.

Pros

• Not subject to complex regulations as in the case of registered charities
• Have the liberty to have a much more commercial nature (compared to Charities)
• Limited liability and the ability to issue shares like a limited company

Cons

• The set-up is relatively more complex as the company will need to be approved by the CIC Regulator.

For more information on business structures, please visit the Gov.UK website.

 

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