Hi
I've got a case where an unincorporated amateur football club has incorporated itself as a company limited by guarantee (CLG), with all assets & liabilities being transferred from the unincorporated association to the CLG.
There is no money changing hands so effectively once the net assets of the unincorporated association have been transferred to the CLG I am left with a credit balance in the CLG equal to the accumulated funds as shown in the Associations final accounts.
My question is the correct treatment of that credit balance in the CLG - is it (a fairly large) loan owed to the old Association that will just sit there forever?
Or could it be credited to reserves which would give a more accurate balance sheet - & if so what would you call it?
Any help appreciated
Replies (18)
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NB if there is any land being transferred, you will have to consider s53 FA 2003 deemed market value rule for SDLT purposes (although there is a potential argument why that's not a problem issue).
So Mr Clever Clogs, why does s53 FA 2003 not apply assuming transfer is not to a charity?
As far as I can see, that ain't explained in the website link below.
Surely you know the answer to that question?
I’m not sure which website you are referring to - I don’t see any that discuss the SDLT implications of incorporating a club. We have handled a number of such incorporations without a charge to SDLT - HMRC confirming the rather obvious application of the relevant legislation.
You clearly don't know and even if you did, if it was a "no sh*t" obvious answer it would be published in this link (if you don't subscribe, take it from me it isn't answered there).
I would wonder what happened at the meeting where the club decided to incorporate.
You shouldn't need to guess.
A meeting did take place & a comprehensive legal document was drawn up by solicitors, not comprehensive enough though as it addressed pretty much every point other than that one.
It does state that following the transfer the old unincorporated association will be wound up so that rules out treating it as a balance sheet loan account item.
That seems to leaves a credit to the P & L account (& a large profit/surplus for the period) as the only option.
Directly crediting reserves would better reflect what has happened though, so I'm asking is that an option?
Yes, if it says transfer, that's what happened.
I often wonder how an unincorporated association can do this sort of thing unless it gets 100% agreement from its members or there is provision within its rules?
I had always sort of understood (possibly wrongly) that just as the members have a personal liability re liabilities of an unincorporated association so they also absent other provisions in their membership documents likely (and I know there have been approaches to the courts re these sorts of matters) possibly hold a personal interest in a share of the assets upon winding up. If this is the case any donation to the new beast may actually be numerous donations from each individual member .
I am a member of a club, an unincorporated association with circa 50 members, that holds about £1m of property assets and faced a dissolution motion a few years ago (luckily defeated)) , at the time these issues did get aired .
The constitution of the old association may have a clause about what should happen to the assets if it is wound up.
I trust that this is a charitable company limited by guarantee and so tax is not an issue.
I have in the past put 'Assets transfer from XXX FC' in other income and put in a note that 'On dd mmm yyy the members of XXX FC, an unincorporated association, resolved in an extraordinary general meeting to transfer the operation and all the assets of the club to XXX FC Ltd, a charitable company limited by guarantee.'
Please make sure all 'i's dotted and 't's crossed re TUPE, clearance to transfer assets at no gain no loss, land registry entries etc etc are done properly.
The RFU has comprehensive guidance on their website on 'Incorporating your club'.
If land is involved consider sticking it in a separate Playing Field Association charity to protect the pitches from the club going down.
The RFU has comprehensive guidance on their website on 'Incorporating your club'.
The FA used to have very good advice too, though I've not looked for many a year.
Assuming there was no change in deemed ownership between the entities then merger accounting rules may apply. This would change the approach for accounting for the hanging credit you're struggling to deal with.