All you need to know about timeshare clubs and their rules
Provided by Mr. David Cox
On behalf of Tess Law
Date 22/11/2019
This article focuses on what timeshare clubs (unincorporated associations) are, how they are structured, governed and the issues to be considered when dealing with terminating membership within them.
What is an unincorporated Timeshare club?
For clubs that apply the United Kingdom Jurisdiction:
An ‘unincorporated timeshare club’ is an organisation set up through an agreement between a group of people who come together for a reason other than to make a profit.
You don’t need to register a timeshare club and it doesn’t cost anything to set one up. Individual members are personally responsible for any debts and contractual obligations and equally individual members of committees can be held jointly and severally liable for contracts entered into on behalf of the association should the association permit them to.
If the association trades and makes a profit corporation tax is due in the same way as a limited company is.
The timeshare club is a legal form commonly adopted by members and other not-for-profit organisations. Its lack of discrete legal identity is at the root of many of the problems which third parties encounter in dealing with such organisations. It is often the case that an organisation may start off as an unincorporated association because the structure is cheap to set up and can be run with relative informality. As its membership grows and its dealings become more complex, the uncertainties surrounding the association’s lack of separate legal identity drive members to adopt more certain or regulated form (such as a company limited by guarantee). There is no statutory definition for a timeshare club, but a number of definitions appear in case law. The most well-known definition comes from Lawton LJ in Conservative and Unionist Central Office v Burrell [1982] WLR 522, who defined the entity as: -
“two or more persons bound together for one or more common purposes, not being business purposes, by mutual undertakings each having mutual duties and obligations, in an organisation which has rules which identify in whom control of it and its funds rests and on what terms and which can be joined or left at will”.
The same judge described the unincorporated association as a "creature of contract", where the contract in question is made between the members of the association. The terms on which they contract with each other are the association’s rules, and the consideration for entering into contractual relations is the member’s pre membership payment and the maintenance obligations. A similar definition appears in Re Koeppler’s Will Trust [1985] 3 WLR 765: “an association of persons bound together by identifiable rules and having an identifiable membership”.
So, the key criteria for a timeshare club is that it should:
• Consist of two or more persons with a common non-business purpose.
• Have contractual relations between those persons.
• Be governed by rules.
• Be non-temporary.
The unincorporated timeshare club has no legal personality separate from its members from time to time, therefore there is no separate body with limited liability, as in the case of a company. The members have duties and liabilities to each other that which stem from the rules of the association. When dealing with third parties, a member will be treated as an individual and his membership gives him no particular protection. However, it is normally the responsibility of a managing committee to assume liability for debts owed to creditors or compensation owed to injured third parties (referenced in Lewison J in. He explained that almost all the myriad of legal problems to which unincorporated timeshares give rise to, stems from the lack of separate legal personality.
Unlike companies, unincorporated timeshare clubs are not generally subject to outside legal controls. For example, there is no central register of unincorporated associations and no central regulator, nor are there any statutory requirements that dictate how they are run. In addition, some timeshare clubs are formed with a literary of competing interests.
There is a degree of legal uncertainty over the point at which a timeshare club comes into being. Usually this happens when a set of rules is adopted by formal resolution at a meeting of the members, however the only members when formed is the timeshare developer who seeks to protects his interest over and above that of the incoming members. That said some rules can also be adopted by long usage if they have been used consistently (John v Rees [1970] Ch 345).
As a membership in a timeshare club is based on contract, a court would probably have to be satisfied that there was a valid and enforceable contract between the members for it to exist. For example, if at a first meeting, the members agree to draft a set of rules to bind others in the future, this would probably be regarded as an inchoate contract that was not legally enforceable and would indicate that the timeshare members' influence in the construction of the rules lacked representation and balance.
Rules of timeshare clubs
A key criterion for a timeshare club is that it is governed by rules created by the entire membership, and those agreements will be representing the terms of the contract between them. A timeshare club is a creature of contract; it is theoretically possible for a timeshare club to be based on an oral agreement. However, the cubs I have had dealings with all have written rules in order to avoid disputes, to protect the position of management committee members and to clarify the purposes for which the club exists.
Form and content of the rules
There are no guidelines, either in statute or case law, on the form or content of a collection of timeshare club rules. This means that there is ultimate flexibility as to what the rules can cover, which may attract some organisations to this type of entity.
However, the courts are increasingly willing to determine the legal effect of such rules (visible from a series of trade union cases in the 1980s and 1990s, including Hamlet v General Municipal Boilermakers and Allied Trades Union [1987] 1 All ER 631 and Douglas v Graphical Paper and Media Union [1995] IRLR 426). It is not possible to oust this jurisdiction (Baker v Jones [1954] 1 WLR 1005).
The courts might also imply terms into the rules of a timeshare club (see, for example, Woodford v Smith [1970] 1 WLR 806, where the High Court had to fill in the gaps in the rules of an association to make sense of the provisions relating to eligibility for membership).
It is desirable for any timeshare club to ensure that its rules cover fundamental descriptions of the association and how its affairs are governed. Where a club needs quite detailed and complex rules to govern some of its functions, it may be more practical to give the management committee power to make bye-laws which can set out the more detailed provisions; these can then be changed in a normal management committee meeting if necessary, rather than being put to a vote at a general meeting of all the members (which would be required every time the club changes its rules).
Any timesharing club rules should cover:
• The name of the association;
• The association’s object and purposes;
• Election and admission of members;
• Payment of subscriptions;
• Resignation of members;
• Suspension and expulsion of members;
• Composition of the managing committee;
• Management of the association’s affairs;
• Finance and property;
• General meetings;
• Alteration of rules;
• Dissolution of the association; and
• Power of specific officers to bind members.
Enforcement of the rules of the timeshare club
All members have the right to insist that the rules are complied with, just as a party to a contract is entitled to enforce its terms. There is no implied power to alter the rules of a club, so in the absence of an express power of amendment, it is not possible for members to force through a change by a majority vote at a general meeting. In such circumstances, the rules can only be amended by:
• Unanimous agreement by the members.
• Under the Literary and Scientific Institutions Act 1854 (where it applies to a club), if at least three fifths of the members present vote for a change and this is endorsed at a second special general meeting held one month later.
If a unanimous decision to change the rules cannot be made, then the only way to change them is to dissolve the original club and form a new one with revised rules.
Members’ rights. As the basis of a member’s right is contractual, what rights you have will depend on the rules of the association. However, some statutory considerations also apply.
Prospective members
Where a timeshare club has member payment rules (upfront payments), a member cannot acquire rights until he has paid. As in the formation of a contract, the club offers membership and the would-be member accepts that offer by agreeing to pay the subscription. Only when the subscription is paid does the contract come into existence.
A would-be member cannot insist on being made a member even if he appears to have fulfilled all the criteria for membership. A prospective member in this position does not even have the right to know why he has not been admitted into the club. In McInnes v Onslow-Fane [1978] 1 WLR 1520, where an application to the British Boxing Board of Control for a manager’s licence was refused without any reasons being given, the High Court held that, because the case did not involve forfeiture of an existing right and there was no legitimate expectation that the application would succeed thus, a timeshare club does not have to give any reason for refusing the application.
Resignation
The procedure for accepting a member’s resignation will be governed principally by the club rules. However, if the rules are silent, a member can resign at any time by giving notice to the club secretary, and resignation takes effect from the date the notice is received. Resignation can be implied by a member’s conduct; for example, if a member does not pay his management fees for a period of, say, three years, this could be seen as an implied resignation see Re Sick and Funeral Society of St John’s Sunday School Golcar [1973] 1 Ch 51. A member who has resigned will normally not be allowed to resume membership unless he is formally re-elected.
A member who has resigned will not be personally liable in relation to any contracts entered into with third parties after his resignation, unless he has continued to hold himself out as a member of the association. Liability under any contract entered into before resignation cannot be avoided by subsequently resigning.
Expulsion
A member cannot be expelled from a club unless the rules allow it. Even where the rules do provide for expulsion, the club must exercise its powers of expulsion in good faith, or it may be possible for the expelled member to obtain an injunction and damages. For example, in Hopkins v Marquis of Exeter [1867] LR, 5 Eq 63, a member of a Conservative club was expelled because he had pledged to vote for certain Liberal candidates in the 1865 election. The High Court held that, in that instance, the committee of the club had acted in good faith but, where it could be shown that a committee had exercised its powers capriciously, the court would be obliged to intervene to protect the rights of the expelled member.
If an injunction is granted, this will prevent the management committee from excluding the member from the association’s premises or stopping him from exercising the rights and privileges of membership. Damages may be available where there has in fact been a breach of contract (that is, where the club rules do not cater for expulsion), but expulsion is unlikely to lead to substantial loss unless the loss of membership effectively bars the individual from exercising the property he owns.
The role of the courts
The court will not generally consider appeals by members against the decisions of a club. Most decisions of a timeshare club will not be open to judicial review because they will not be a matter of public law. However, the court can intervene where a decision is outside the powers set out in the rules of the club or falls outside the objects of the association.
Funding
There are a number of different ways in which a timeshare club can raise funds.
Subscriptions/management fees
Although subscription fees are not an essential element of membership, management fees or points acquisitions are. Once a member is accepted as such into a club which provides for the payment of management fees in its rules, the member is contractually obliged to pay his fees until he resigns. However, the timeshare club cannot sue a prospective member for the first subscription because until this has been paid he is not considered to have entered into a contract with the other members. If a member does not pay subsequent management fees he can be sued by the other members for the payment due.
Borrowing
Without an express power in the rules to borrow money, a timeshare club cannot take out a mortgage, bank loan or loan from a third party or one of the members. With an express power in the rules, a timeshare club can mortgage real property. An alternative way of raising funds is to issue Debentures on property owned by the club. This is usually done by charging the premises to trustees, who then hold the charge on trust for the debenture holders. If any undertaking to pay back the principal and interest is limited to the value of the funds held by the association, this will protect the individual members and, in particular, management committee members, from personal liability.
Creating a floating charge over the assets from time to time of timeshare club can cause problems because the association has no separate legal identity. If unsecured loans are taken from third parties or from members of the club, the creditor cannot imply a charge over the association’s property. If the loan documents state that the loan will be repaid “as and when the committee of the association may determine”, this does not equate to repayment on demand and there will be no obligation to repay until the committee decides to do so (Wylie v Carlyon [1922] 1 Ch 51).
Where individual members have signed the acknowledgement of indebtedness for a bond or debenture, they will be personally liable unless the acknowledgement contains a restriction on the right of repayment. In some cases, a clubs rules may specify that members are liable to make a contribution in the event of a deficit. If that is the case, then a past member may also be liable if bonds were issued during his membership with his knowledge and assent.
Grants and contracts
Many timeshare clubs, particularly those concerned with holiday inventory, may receive funding from the developer. In such cases, those offering the funds often expect a degree of control over how the funds are spent by the club, and grants are often made conditional on certain criteria being fulfilled. This control is usually documented in a funding agreement that may provide for a claw-back of funds if certain conditions are not met or certain standards are not complied with. For example, the Arts Council has published standard conditions for grants (see Arts Council standard conditions).
As a timeshare club has no separate legal identity, they cannot enter into a contract to provide services in return for funding. The contract has to be made with individual officers of the association (and should be carefully drafted to limit the personal liability of these individuals). From the point of view of the third party management company, liability for breach of contract is problematic when dealing with a timeshare club, and problems of personal liability under contracts lead many clubs to adopt corporate status either as a company limited by guarantee or as a Community Interest Company .
Gifts
A Timeshare club may receive gifts of money, equipment or land. If the gift is cash, it can be made to the club as an addition to its funds. The cash will be held on a contractual basis together with the club’s property. This method of holding property was confirmed in Re Recher’s Will Trust [1972] Ch 526, where a gift was made by will to the London and Provincial Anti-Vivisection Society. In that case, the gift was made without any words importing a trust, and so the High Court saw the gift as taking effect in favour of the existing members of the association as an accretion to its funds. On this analysis, each member would not be entitled to a distributive share of the cash gift because the gift was made as an addition to the funds held under contract between all the members.
Holding property
Because a timeshare club has no separate legal capacity, property must be held by individuals on behalf of the club. There are four different ways in which the property can be held:
• By all the members by Joint tenancy or by Tenancy in common.
• By some of the members as trustees on trust for all the members.
• By some of the members as trustees on trust for the purposes of the association.
• By all the members subject to their contractual rights and liabilities to each other as set out in the association’s rules.
The rules of the association will usually set out which type of ownership structure is involved.
Joint tenancy or tenancy in common
Where the rules are silent, the assets belong in law to the existing members of the association in common beneficial ownership. At first glance, this would seem to imply that property would be held by all the existing members equally as joint tenants, but it can be seen that this would immediately create difficulties, as Timeshare clubs are made up of a membership continually in flux with members leaving and joining all the time. Any member could sever the joint tenancy at will and new members joining would also create a tenancy in common. A member’s interest in the club would not entitle him to a distributive share of the association’s property (see Gifts above), nor would it mean that he could transfer his interest to another or to his personal representatives on death. Rather than seeing property as held under a joint tenancy or tenancy in common, the courts have tended to analyse ownership as based on contract.
Trusts for members
The property of a timeshare club can be vested in two or more persons to hold as trustees for the membership of the club. This is achieved by a declaration of trust by trustees, or by a transfer of land containing the declaration. If the trustees declare that the property is held according to the rules of the association then these rules will become a document of title.
A trust law problem arises with this method of ownership because, in order for a valid trust to exist, the beneficial class must be sufficiently certain and ascertainable (In re Gulbenkian’s Settlement [1970] AC 508). As a result, a trust for present and future members of a club would fail. This sort of trust would also be void as being in breach of the perpetuity rules. A trust for existing members only would not be a viable alternative, as it would not cater for future members.
As a result, trusts over property are usually set up as for the benefit of members of the club “for the time being”. This gets around the problem of defining the beneficial class sufficiently accurately. To avoid infringing the rule against perpetuities, it must be clear that the members of the club can dispose of both income and capital. Words can be included in the dissolution clause of the club rules to make it clear that, on a dissolution, the property should be distributed equally among the members at the date of dissolution.
If property is held on trust for the members, they will have equitable rights against the trustees to ensure that the property is applied for the benefit of the membership. This equitable interest will also enable members to take action against a third party who has wrongfully acquired the club’s property, according to equitable tracing rules.
Trustees usually hold the property of a timeshare club on bare trust, with the management being vested in a controlling committee. Purchasers from trustees of a club should be careful to check that the trustees have been authorised by the controlling committee to sell the property; this will avoid any actions by members. It is therefore advisable for purchasers to ask to see a copy of the club rules or to ask for a declaration from the controlling committee that the sale is authorised.
Trust for purposes
Some clubs may decide that property should be held not for the benefit of the members but on trust for the purposes of the club. This will be a purpose trust which is usually invalid under English law unless the purpose is exclusively charitable (Re Wood [1949] Ch 498). If, however, the purpose is exclusively charitable, then the timeshare club may need to register with the Charity Commission and be subject to charity legislation and the principles of charity case law.
Contractual basis
Where no specific trust exists over club property, it is possible for it to be held subject to the members’ respective contractual rights and liabilities. In such cases, the club treasurer would hold management fees, and the proceeds of fund-raising on a contractual basis. The treasurer or other custodians holding the property are contractually bound to the members to deal with the property in accordance with the rules of the club. If funds are misapplied, then members would have recourse to the usual contractual remedies against the treasurer or other custodians. However, they would not be able to take action against a third party who has received the property, unlike the trust position.
Liability
When dealing with a timeshare club, it is essential to bear in mind that it has no separate legal identity, and that each member’s personal liability will usually be limited to the extent of his ingoing fee (Wise v Perpetual Trustee Co [1903] AC 139). It will be necessary to establish the role of the person with whom you are dealing: for example, is he acting as an agent for the members, is he on the managing committee of the club, or is he a trustee of club property? This will determine against whom you can bring an action.
Contractual liability
It is not possible to contract with the club itself; nor is it possible to contract with the members from time to time. Individuals contracting on behalf of the club may be personally liable or they may be acting as agents for the members. Even when a member purports to act as agent for the club, he may be personally liable if he has not made sure that he has authority to contract as an agent.
If the contract is made with an agent on behalf of the club, the principal cannot be the association itself as it does not have legal personality; rather, the principal will be whoever authorised the individual(s) to enter into the contract. If the authority to contract came from the rules of the club, then all the members will be co-principals.
If the authority was given by the management committee, then the management committee members will be liable. It could be argued that the members of the club impliedly give its officers authority to enter into contracts on their behalf because they have signed up to the rules. Bearing this in mind, it is important that club rules set out very clearly what power the secretary, treasurer or other officers have to bind the members. Where a contract has been entered into by one or more members as agent for the club (for example, signed by James Smith and Jane Jones for and on behalf of the “A great timeshare Club”), then the other contracting party should sue all the members as co-principals.
When contracting with a particular member of a timeshare club, it is advisable to ask to see a copy of the rules to establish whether he has authority to bind the members. The extent of any liability should also be established: is the person contracting on behalf of the club personally liable for the full amount, or is his liability limited to the funds of the club? If liability is expressly restricted to the funds of the club, it will be necessary to establish what funds the association has. Alternatively, the contract could limit liability to a specific sum (as long as this can be seen as a reasonable requirement in accordance with sections 3 and 11 of the Unfair Contract Terms Act 1977).
As there is no right for committee members of a non-charitable club to be entitled to an discretionary benefits scheme from the assets of the club for all authorised liabilities incurred by them in the management of it (although the law in this area is far from straight forward), it is prudent to include a specific discretionary benefits scheme in favour of committee members in the clubs rules.
Tortious liability
A Timeshare club could become involved in a claim in tort because of something that happens on the club’s premises or because of the actions of members. The club itself cannot be sued as an occupier under the Occupiers Liability Act 1957 because it is not a separate legal entity. If the premises are vested in trustees, they will be treated as occupiers and will be defendants in any action (Verrall v Hackney London Borough Council [1983] QB 445). The managing committee does not automatically owe any duty of care to visitors on club premises (although see below), and it could be argued that all members are collectively the occupiers.
Individual members or a sub-group of them may be liable in tort if they assume particular responsibility for the upkeep of premises or for ensuring that the premises are safe. In many cases this particular responsibility may be assumed by the managing committee or a sub-committee. For example, in Brown v Lewis [1896] 12 TLR 455, the members of a sub-committee which had been given responsibility by a football club to see to the upkeep of a stand were all held personally liable when the stand collapsed and injured a spectator.
Members’ activities may also give rise to tortious liability. This is particularly so with sporting aspects. All members of a club may be held liable if they are all carrying out a particular activity which gives rise to the tort. For example, in Kennaway v Thompson [1980] EWCA Civ 1, all the members of a boating club were found liable because their boats were causing a nuisance on a lake. Similarly, in Tetley v Chitty (1985) 135 N.L.J. 1009 all the members of a go-karting club were held liable in an action for nuisance due to the noise generated by the races conducted by the members. However, where an individual member is the sole tortfeasor, he may be held personally liable.
Whether a person will be vicariously liable for the actions of employees depends on if he can be seen as the employer. No contract of employment exists between the individual members and employees because the individual liability of the members is generally limited to their management fee. It is more likely that the management committee of a club will be seen as the employer, as it will be in control of the association’s affairs, including employment contracts.
If an individual member is found liable in tort, he will not be able to limit the liability to the funds held by the club as he can in contract. Nor is he entitled to a discretionary benefits scheme from the other members beyond the funds of the club, unless the rules expressly allow this.
Timeshare clubs that deal frequently with third parties usually try to limit their liability by means of notices and exclusion clauses. Another essential way of protecting the timeshare club against tortious liability is insurance. This will be issued to the committee for the time being or a particular officer as a representative of the members. If the insurance contains member-to-member discretionary benefits scheme, then if one member becomes liable, he can claim on the policy. Third parties dealing with timeshare clubs may need to check that adequate insurance is in place.
Taxation
A timeshare club comes within the definition of “company” for the purposes of the Corporation Tax Acts (s 1121, Corporation Tax Act 2010 (CTA 2010)). The same is true for chargeable gains s 288(1) Taxation of Chargeable Gains Act 1992) (TCGA). This means that the timeshare club itself is primarily liable to pay tax even though it has no legal personality.
However, connected with the definition of a unincorporated association as two or more persons with a common non-business purpose is the concept of “mutual trading”. Mutual trading exists where two or more persons combine and contribute to a common fund to pay for a venture or the furtherance of an object and they have no dealings with an outside body (New York Life Insurance Co v Styles [1889] 14 App Cas 281). If mutual trading exists, then any surplus funds will not be interpreted as a trading profit and so will not be chargeable to corporation tax; they can instead be regarded as the members’ own money (IRC v Eccentric Club Ltd [1924] 1 KB 390). For example, any surplus funds generated from the sale of alcohol to members will be the members’ own money. Similarly, there is no relief for deficits made from mutual trading.
Where income is received from non-members, any profits generated will be liable to corporation tax. It may be possible to treat this as mutual trading (and so avoid a tax liability) by creating temporary memberships for those participating in events. However, temporary members must have the same rights and benefits as existing members. Further, if the sole or main purpose for creating the temporary membership is to avoid a tax liability, this may be reportable to HM Revenue & Customs (HMRC) under the disclosure of tax avoidance schemes regime (see PLC Tax, Practice note, Direct tax disclosure regime).
When computing taxable profits from trading with non-members, only the expenses directly relating to the provision of facilities to those non-members can be deducted. The ordinary running expenses of the association will be covered by the members’ subscriptions.
Other Income
In addition to trading income, a club will also be liable to tax on income from letting property or from investments as with any company. Subscription income is not regarded as income under the Corporation Tax Acts or under the Income Tax (Trading and Other Income) Act 2005.
HMRC’s Approach
Following the removal of the nil starting rate of corporation tax in the Finance Act 2006, all companies with taxable profits are liable to tax at a rate of at least 19%. As a concession, HMRC will not collect small amounts of tax (£100 or less a year) from clubs that are run exclusively for the benefit of their own members (HMRC: Unincorporated organisations and corporation tax ). Clubs with corporation tax liabilities below this threshold will be treated as if they are dormant and no assessments will be made on them. This concession does not extend to: privately-owned associations run by members as a commercial enterprise for personal profit, holiday clubs; and friendly societies etc.
VAT liability
A Timeshare club that provides facilities or advantages to members comes within the definition of “business” for VAT purposes (s 94(2)(a) Value Added Tax Act 1994) (VATA 1994). So, if a club supplies taxable goods or services to its members in excess of the VAT registration threshold, it will have to register for VAT. Even if no corporation tax is payable because the association carries out mutual trading (see above), it may still be liable to pay VAT. Registering for VAT may be advisable even if an association is below the registration threshold if, for example, it wishes to recover significant input tax on capital projects.
If subscriptions only cover membership of the club and nothing else, they will be subject to VAT. The subscription is in exchange for the privileges of membership, which are a supply of services. If subscriptions cover the provision of various facilities and goods to members, the different elements should be analysed to determine whether there is a single composite supply or multiple supplies (see PLC Tax, Practice note, Value added tax: Multiple and composite supplies). If there are multiple supplies, the subscription will need to be apportioned between those goods and services attracting VAT at different rates or not at all.
Specific exemptions. Specific exemptions from VAT exist where non-profit making organisations supply sports services. Private non-profit making members’ clubs that are run purely for the benefit of members without any outside commercial influence will be within the sports exemption (Kennemer Golf & Country Club v Staatssecretaris van Financien, Case C−174/00). However, proprietary clubs, administered under the influence of a commercial entity where the rules of the club do not preclude profit making will not be within the sports exemption (Article 132(1)(m), Council Directice 2006/112/EC on the common system of value added tax (VAT Directive) and HMRC VAT Notice 701/45).
Another exemption relates to the supply of cultural services (Article 132(1)(n), VAT Directive). The VAT Directive allows EU member states certain optional limits to the cultural exemption, one of which (adopted in the UK) is that the exemption will apply only to clubs that are managed and administered on an essentially voluntary basis by persons with no direct or indirect interest in the results of the activities concerned (Articles 133 and 134, VAT Directive and Group 13, Schedule 9, VATA 1994).
In Commissioners of Customs & Excise v Zoological Society of London Case C-267/00 and Bournemouth Symphony Orchestra v Commissioners for HMRC [2006] EWCA Civ 1281, it was suggested that in order to be managed and administered on an essentially voluntary basis, the body must not have a commercial purpose, and the persons who participate in the management and administration of the body must have no financial interest of their own in the results, by means of salary, distribution of profits or any indirect financial benefits (www.practicallaw.com/9-206-4972).
Alternative structures
Organisations set up as a unincorporated association often decide to adopt a different legal structure because of fears about the personal liability of its managing committee members and the uncertainties surrounding the legal position of members. A number of alternative structures could be chosen:
Company limited by guarantee
In British and Irish company law, a private company limited by guarantee (LBG) is an alternative type of corporation used primarily for non-profit organisations that require legal personality. A company limited by guarantee does not usually have a share capital or shareholders, but instead has members who act as guarantors. The guarantors give an undertaking to contribute a nominal amount (typically very small) in the event of the winding up of the company. It is often believed that such a company cannot distribute its profits to its members but (depending on the provisions of the articles) this is not actually true. Converting a limited company to a Community Interest Company (CIC) removes this doubt entirely, as CICs feature an asset lock which prevents the extraction of profits. However, a company limited by guarantee that distributes its profits to members (nor CICs) would not be eligible for charitable status.”
Community interest company
Community interest companies (CICs) are a designed for social enterprises pursuing social objectives such as environmental improvement, community transport and fair trade.