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Company limited by guarantee

Transfer of assets/liabilities

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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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Scalloway Castle
By scalloway
15th Sep 2021 15:39

As far as I recall the last time I did this I treated it as a donation.

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Replying to scalloway:
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By GeeDee
15th Sep 2021 16:07

That would mean the balance sheet would look a lot more sensible, although I'd have a large one off credit to the P & L which would make the profit seem very high.

I guess they can't have it both ways

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By Paul Crowley
15th Sep 2021 16:17

I would put it on the P & L and descibe it as transfer of assets from....

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By Justin Bryant
15th Sep 2021 16:45

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).

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Replying to Justin Bryant:
Psycho
By Wilson Philips
16th Sep 2021 10:45

Justin Bryant wrote:
there is a potential argument why that's not a problem issue.

No sh*t

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Replying to Wilson Philips:
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By Justin Bryant
16th Sep 2021 11:29

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.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
16th Sep 2021 13:51

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.

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Replying to Wilson Philips:
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By Justin Bryant
16th Sep 2021 13:56

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).

https://uk.practicallaw.thomsonreuters.com/7-518-9248

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RLI
By lionofludesch
15th Sep 2021 17:49

I would wonder what happened at the meeting where the club decided to incorporate.

You shouldn't need to guess.

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Replying to lionofludesch:
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By GeeDee
15th Sep 2021 18:07

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?

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Replying to GeeDee:
RLI
By lionofludesch
15th Sep 2021 18:45

GeeDee wrote:

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.

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paddle steamer
By DJKL
16th Sep 2021 00:31

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 .

https://en.wikipedia.org/wiki/Unincorporated_association

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Replying to DJKL:
Scalloway Castle
By scalloway
16th Sep 2021 07:47

The constitution of the old association may have a clause about what should happen to the assets if it is wound up.

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Replying to scalloway:
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By GeeDee
16th Sep 2021 09:19

Thanks for all the responses, crediting to a reserve seems to best reflect what has happened & result in a credible balance sheet & P & L.

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Replying to scalloway:
paddle steamer
By DJKL
16th Sep 2021 23:17

Hence my absent any terms in their membership documents comment.

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By CJS88
16th Sep 2021 10:21

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.

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Replying to CJS88:
RLI
By lionofludesch
16th Sep 2021 10:29

CJS88 wrote:

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.

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By johnt27
17th Sep 2021 14:45

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.

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