Incorporation of Carnethy into a Company
Carnethy Hill Running Club and Carnethy Hill Racing Club are both companies limited by guarantee incorporated in Scotland.
Why a company limited by guarantee?
In summary, to protect members from any future potential financial liability of Carnethy Hill Running and Racing clubs. By being a company limited by guarantee all members’ maximum liability is limited to £1, in the unlikely event that the club was unable to meet its liabilities.
The majority of running and athletic clubs are legally defined as unincorporated associations, which means they have no separate legal identity, and all club members have joint and several liability for their club’s liabilities. In addition that liability is potentially unlimited.
In 2014, following a review of the clubs’ legal status, and legal advice from CMS Cameron McKenna in Edinburgh, the committee recommended at its AGM that the both Carnethy clubs become companies limited by guarantee. Following a ballot of senior members present, the club voted unanimously to accept the committee’s recommendation, and on 1st January 2015 the clubs’ assets were transferred to the two new companies.
The review of the clubs’ legal status highlighted the potential liability risk to members, in particular the organisers of the club’s races. The tragic events at 2012 Buttermere Sailbeck Fell Race, and the subsequent coroner’s inquiry raised the possibility of a race organiser being held liable for competitors’ losses.
In addition the inquiry process showed there was a conflict of interest between the policy holder of race insurance and the person that the insurance was supposed to insure. In this case; UK Athletics and the race organiser. Additionally insurance has limitations of cover which will not cover every potential loss. The committee decided to also review the clubs’ insurance arrangements (see below). In the event that insurance would not cover or pay out for losses incurred, a court may seek to recover those losses from the club and its members.
In an increasing litigation led world, where blame is directed, and compensation sought, the committee had an obligation to investigate how to protect the clubs’ members from any possible future legal actions brought against the club and its members.
Whilst Carnethy races are organised to the highest standards, by experienced race directors, and will always adhere to the SHR safety rules, the committee recognise that unforeseen events can occur, which may lead to losses. By having all races, and events organised by Carnethy Hill Running Club, it is the club, and not an individual who is the legal “organiser”, and therefore it is the club who would be liable for any potential losses.
The committee recognised that training and other events (handicap races, social runs, etc) were also in effect being organised by individual club members, which was potentially exposing all members to joint and several unlimited liability. By transferring the organisation of all training and other events to Carnethy Hill Running Club, members now have the benefit of limited liability.
The committee considered other legal entities such as Industrial Provident Society (IPS) and Scottish Charitable Incorporated Organisation (SCIO). On review, given the additional constraints and reporting requirements, and following legal advice, it was recommended that the most suitable legal entity for the club was a company limited by guarantee. Members have the ability to tailor the Articles of Association (the documents that form the company’s constitution, define the responsibilities of the directors, and the activities of the club). The reporting requirements are minimal; an annual return and the annual accounts to be filed at Companies House plus an annual corporation tax return with HMRC.
Prior to January 2015 the club used the insurance cover from SHR for its races. This insurance only provided cover for individual races, and none of the other club’s activities (training, handicap races, social events, etc) were insured, neither were the club’s assets. The current insurance policy provides public liability insurance for club races, all the club’s other activities, the club’s assets, and directors’ liability insurance. This policy is reviewed annually and insurance cover amended as required to suit the requirements of both clubs.
Limited companies, in addition to unincorporated associations, are liable to corporation tax on their profits. Whilst both Carnethy clubs are run as not for profit entities, in some years a surplus over income can arise. In order that no corporation tax becomes liable, the clubs have been granted Community Amateur Sports Club (CASC) status by HMRC, and provided that the qualifying conditions continue to be met, there will be no corporation tax to pay.
By being a company limited by guarantee the club has its own legal identity and offers the highest level of liability protection to its members. There has been no noticeable change in the way the club is run, and membership continues to grow, with Carnethy being the largest hill running club in Scotland. Since 2015 a number of other running clubs have sought to follow Carnethy, and become companies limited by guarantee.
The draft articles for the Carnethy Hill Running Club can be downloaded from
The draft articles for the Carnethy Hill Racing Club can be downloaded from
Further information and useful links:
Companies House: https://beta.companieshouse.gov.uk/company/SC492072
Sailbeck Inquiry coroner’s report can be found here: https://www.judiciary.gov.uk/wp-content/uploads/JCO/Documents/coroners/pfds/other/Belfield+2013-0270.pdf
Below are answers to some queries and questions that members have asked about becoming incorporated…
Why, when we have race insurance?
There is judicial precedent for individual members and committee members of sports clubs formed as unincorporated associations being deemed liable to meet damages claims raised by 3rd parties. So whilst race insurance protects race organisers, it does not protect everybody else in the club.
Importantly, most of the club’s activities are not covered by the present SHR insurance- Wed runs, handicaps, intervals, bike outings, night runs etc. Any one of these exposes us to a risk.
What risks are we talking about?
Anything from a claim that we, say, damaged a wall or fence during a handicap, caused a road traffic accident as the Wednesday night run went across West Mains Road, or, at the far end of the spectrum, caused somebody to injure themselves to such an extent that they need 24hr care for the rest of their life. The Sailbeck inquiry raised the possibility of the race organiser being deemed liable for the death of a competitor – thankfully the Coroner reached the right conclusion of death by misadventure – but in those circumstances, the exposure could be to addressing loss of income to dependants of the deceased. The chances of that happening we strive to ensure is very very small. But the consequences of all club members having to meet a 7 figure damages claim are unthinkable.
Why not incorporate an events section of Carnethy or individual races?
See above – this is not about races, it is about everything we do. Also, it would be easy for a lawyer to link a company with little reserves and limited liability to the membership of a wider unincorporated association, especially if they both were called Carnethy.
What are SAL/the governing body saying?
SAL are slow off the mark. The Hill Running Commission does not consider there to be a problem. But governing bodies for other sports – Kayaking and Rugby being two good examples – are very clear in their advice incorporate your club to limit the liability of individual members.
Why not Industrial Provident Society or SCIO?
Carnethy runs on the basis of altruism with people volunteering their time and effort to make everything we do happen. So somehow the word “charity” feels more appropriate. Generally, the “Charity” status is about tax- in particular it allows charities to recoup tax on donations by the gift aid scheme.
We are company limited by guarantee with the status of a Community Amateur Sports Association. So we have a corporate form that is readily recognised by insurers and banks and a tax status specially designed for us. Our understanding is that being a SCIO or IPS does not offer any more protection to members or the committee whilst a charity would involve additional reporting requirements.
What about other clubs’ experiences – have you spoken to them?
Yes, we have been in touch with Dark Peak who are very similar to us in size and ethos. They incorporated in direct response to the Sailbeck inquest and have been very willing to share their experiences.
In Scotland, we are the biggest hill running club by membership and number of races, so are most exposed. Also, our closeness to the Sailbeck FAI (one of our members was the SHR expert witness) means we have first-hand sight of the risks we are trying mitigate against. Others may follow, especially if SAL awaken.
How do members join- do they need to sign the Articles of Association?
As now – fill in the form on Entry Central or return a paper copy of the membership form with the annual membership fee.
Does the structure protect the club against future coups’ d etats, especially those derived from a profit motive?
The articles of association replicate the existing arrangements for election of committee members and dissolution of the club. These are strengthened by the Articles of Association specifically prohibiting the distribution of profits other than to another CASC or an organisation with similar objects on dissolution. This is also required in order to achieve CASC status.
Does incorporating not put us on the Corporation Tax radar?
The CASC status gives us exemption from CT.
Why not abolish membership so the club has no membership and obtains funding by donation?
Legal advice is clear – those steering the club (eg just posting on a www page that a run will be on Wednesday evening) would be likely to have the status of unincorporated association so we would be no different to where we were before.
The conditions of Scottish Athletics affiliation mean that Carnethy Racing Club needs to exist and have members.
Also, we are the biggest hill running club in Scotland – more members and more events that anyone else. This means we have some responsibility to lead by example.
What does this mean for Individual members?
Nothing apart from removing the small risk of them being liable to meet a liability that potentially they had no part in incurring.
What does this mean for the Committee?
They are Directors of the Company (although the Articles of Association mean they continue to have the existing titles such as President, webmaster etc and be called the Committee).
How much does incorporation cost?
The law firm CMS Cameron McKenna in Edinburgh has kindly assisted us with key documents on a pro-bono basis. The filing fee at Companies House will be £40 per company.
What are the Reporting Requirements for a company?
The annual reporting requirements are the filing of annual accounts and an annual return with Companies House. In addition, there are event-driven filings – the most relevant ones will be for the appointment and resignation of directors (Committee members). The company is required to file an annual corporation tax return with HMRC.
What are the costs of the Additional Reporting?
£13 pa for electronic filing of annual return. No additional cost for changing directors. No cost for filing the annual corporation tax return with HMRC.
Why Incorporate the Racing Club Too?
We want the members of the Racing Club to benefit from the same protections that incorporation affords.