Proposed Conversion to a Company Limited by Guarantee
Background, current status, and way forward
At the AGM on 7 May 2021 there was strong support for converting the BGA to a company limited by guarantee. However, members wanted more information and passed the following resolution:
“That the BGA agrees in principle to change from an Unincorporated Association to a Company Limited by Guarantee, and instructs Council to consult with Members in order to bring forward a proposal to an AGM.”
We therefore published this, and a number of subsidiary Pages, well in advance of the 2022 AGM which took place online on May 26 at 19:30. At the AGM the Memebrship approved Council's motion to convert to a CLG.
During the next few months, the new Company will run in parallel with the existing BGA. BGA members will be invited to become Members of the new organisation (t no additional cost) although the Company Limited by Guarantee will have no assets. Then at a date (to be determined) in the Autumn, all the BGA's assets (and liabilities) will be trasferred to the new Company, and the existing BGA willl cease to exist.
In formulating this change, we wanted to ensure that it will have minimal impact on the majority of BGA members. All being well, you should barely notice that there has been a change - you don't need to do anything, you can renew as usual, and you'll keep all the same rights as you're used to.
The name of the new company limited by guarantee is “The British Go Association”, identical to the name of our existing unincorporated association.
To avoid confusion, we use the following consistent terminology:
- BGA = The existing unincorporated association, governed by our constitution, of which we are all members. You can see its assets in the accounts presented at the previous AGM.
- BGA CLG = The new company limited by guarantee. This will have no assets and no liabilities until conversion takes place, currently scheduled for 3 months after the AGM.
In order to progress this project, Council set up the Governance Committee. This comprises:
- Toby Manning, who has experience in running his own Company, and who set up the T Mark Hall Foundation as a Company limited by Guarantee
- Neil Sandford (resigned August 2021)
- Colin Williams. Colin has been BGA Secretary since 2020, he is a Director of the T Mark Hall Foundation, and has experience of running his own company before his retirement.
- Mohammed Amin (co-opted onto Council May 2021). Amin has been a BGA member since 1969. He has extensive governance experience. If you want to know more about the rest of him, just scroll up or down on the page after clicking the link. You may find that it is rather long!
- Andrew Ambrose-Thurman, who has been a BGA Council member since mid 2021 and has an MBA focussing on volunteer led organisations
Since the 7 May 2021 BGA AGM:
- Council’s Governance Committee has produced Articles of Association for BGA CLG. We started with some model articles published by Companies House, but then needed to extensively tailor the model articles to ensure that the final form corresponded as closely as possible with the way that the BGA has operated historically.
- Council has approved the articles and the incorporation of BGA CLG.
- We have incorporated BGA CLG at Companies House at a cost of £22. At present, it has four members (companies limited by guarantee have no shareholders, only members who have votes, normally one vote per member as in this case), being the four members of the Governance Committee, and they are also the four directors. The company has no assets and no liabilities. It is an empty shell, which can be easily dissolved should members decide not to proceed with conversion. The £22 is a sunk cost.
- On 10 March the members of BGA CLG held an EGM to amend the Articles, following the results of the Consultation Exercise.
- Following further comments from BGA members, on 26 April the members of BGA CLG held another EGM to further amend the Articles.
- On 26 May the BGA AGM to authorised conversion.
This paper sets out to:
A separate document describes the detailed steps required to achieve conversion.
At one time most organisations like us were unincorporated associations. Basically, they wrote whatever constitution the members wanted to have. As a matter of law, such unincorporated associations do not exist as legal entities. The law recognises only “natural persons” (which is legal jargon for human beings) and “legal persons”.
Legal persons are all legally recognised entities apart from natural persons. They include companies incorporated under the Companies Acts, bodies incorporated by Royal Charter, charitable incorporated organisations, the Crown, "corporations sole" such as the Archbishop of Canterbury etc.
Under the law, certain things can only be done by natural or legal persons. A simple example is owning registered assets in their own name such as land or shares. (This has not been an issue so far, as our assets have only been cash in the bank and Go equipment.) If an unincorporated association wants to own such things, it has to appoint one or more natural or legal persons to act as trustees. The trustees will own the asset in their names but on trust for the unincorporated association.
Although most organisations like us used to be unincorporated associations, that is gradually changing. The trend is for them to be companies limited by guarantee. For example, the unincorporated association called the British Chess Federation (which despite its name only ever governed chess in England) converted a few years ago to the English Chess Federation (a company limited by guarantee). The English Bridge Union is also a company limited by guarantee.
Companies limited by guarantee benefit from a strong framework of law, whereas unincorporated associations are very much a DIY affair.
For example, if you read the existing BGA constitution carefully, you see that it is very unclear about the role and responsibility balance between the officers and the rest of Council. Conversely, company law is very clear about the collective responsibility and decision taking authority of the directors, while also enabling delegation if the board wishes to do so.
Complying with the law adds discipline. Indeed, this may well be the single biggest benefit of conversion.
Other benefits include:
· Limitation of liability. This is one of those things that appears unimportant until when it really matters!
· Ability to own assets in its own name. This may become more important in the future, for example if the BGA wanted to invest some of its funds.
As we have not engaged lawyers (not even cheap lawyers) the only costs incurred so far have been the Companies House incorporation fee for BGA CLG of £22 which is a one-off cost.
Each year, BGA CLG will have to file a confirmation statement at Companies House for which the current fee is £13 per year.
The other operating costs of the BGA, and the tax law which applies to it, are unchanged by conversion.
The most important thing which stays the same is that we remain a member-controlled organisation. With the BGA, the membership is in complete control of everything if members wish to exercise their collective power. The same remains true of BGA CLG.
The Council gets renamed as the Board of Directors but apart from the change of name, continues as before to run the organisation, and continues to be elected by and to be removable by the members.
One change covers the majority required to amend our governing documents. At the moment our Constitution (clause 58) requires a 67% majority before it can be amended, with at least 20 people voting. The Companies Act specifies that a 75% majority is required before the Company's Articles can be changed (it also specifies a 75% majority before the Company can change its name or be voluntarily wound up), with a quorum at the meeting of 20 or 10% of the membership (whichever is lower) (Article 38).
We do not consider this to be a significant change.
The major changes are greater clarity about responsibility.
It is the Board of Directors collectively that will run BGA CLG. This forces us to clarify something that the BGA has never really had to contemplate, namely the role and powers of the President, Treasurer, and Secretary and how they are balanced with the role and powers of the rest of Council.
As mentioned above, with a CLG, the board has collective responsibility, and all directors are equal. For continuity, we consider that we should have people (Officers) with the designated roles of President, Finance Director and Company Secretary, and these will be elected by the members at the AGM. However, the Board as a whole will retain responsibility, and the Board will decide how much of its power to delegate to each Officer.
Something else the conversion process has led us to focus on, which has historically also been ignored, is exactly how someone becomes a member, and even more importantly, what happens in the case of bad behaviour. We will therefore introduce a Code of Conduct with a formal process for investigting and possibly sanctioning anyone breaching the Code. The Code is intended to merely codify normal practice, and we believe that breaches of this Code will be very rare.
Finally, each person who becomes a BGA CLG member will have to guarantee £1 of its liabilities in the event of insolvency, but will otherwise have limited liability. With the present structure of the BGA, the circumstances in which ordinary BGA members could become liable for its debts in the event of insolvency are legally quite complex and possibly remote, but they do not have the clear limited liability that the CLG structure brings.
The major advantages of becoming charitable are financial. Charities are largely exempt from paying tax – but the BGA’s corporation tax liability is tiny because it has no trade or business, currently earns minimal interest income and has no investments giving rise to capital gains. As the liability is so small, HMRC has provided an exemption from filing tax returns so long as the theoretical tax liability is under £100/year. The same will be true of BGA CLG, so this will not be changed by the process of conversion. If the BGA were to purchase property, however, then charitable status could result in exemption from business rates, for example.
If it became a Charity, the BGA might be able to claim a portion of Members’ subscriptions as Gift Aid. The tax law is complex. If the members get something of value for their subscription, such as a magazine or grading services, the corresponding part of their payment is not eligible for Gift Aid. Gift Aid is intended only for payments from members for which the member gets no personal benefit, other than the right to be a member and to vote.
Unlike conversion to a CLG, becoming a charity is irrevocable: once the BGA’s assets are placed into a charitable organisation, it is not possible to transfer them into a non-charitable one.
We looked at the option of becoming a charity, but we decided not to recommend this route, for the following reasons:
a) It would constrain our activities in the future
b) There are few advantages
c) There is nothing to stop us applying to become a charity in the future.
The most serious reason for not becoming a charity at this stage is that charities exist for the public benefit. The BGA has always been an organisation which sees its main goal as doing things for BGA members (as well as promoting Go more generally). The emphasis would be radically different if we were a charity.
We should note that other Governing Bodies have considered the option of becoming charitable and have decided against it – neither the English Chess Federation nor the English Bridge Union are charities. However, those games do have charities which exist to promote junior chess and other purposes which qualify as charitable.
Similarly, the game of Go already has one registered charity, namely the London Go Centre and the Castledine-Barnes Trust is intending to register as a charity in the near future.
A concern has been expressed which we summarise as follows:
"Under its Constitution, it is clear that the BGA Council is responsible only to BGA Members. However, under company law, the duty of the Directors is to the company as a legal entity, rather than to its members. Does this weaken the rights of members?"
To understand why this concern is both strictly accurate in terms of legal language, while not being a valid concern at all, it helps to look at the company law first, and then step back and consider what it means for our organisation.
The law is set out in Companies Act 2006 s.170 to s.177
Some of these sections merely codify what we would want, such as proper declarations of conflicts of interest.
The most important provision is s.172 which is worth reproducing here:
172 Duty to promote the success of the company
1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—
a. the likely consequences of any decision in the long term,
b. the interests of the company's employees,
c. the need to foster the company's business relationships with suppliers, customers and others,
d. the impact of the company's operations on the community and the environment,
e. the desirability of the company maintaining a reputation for high standards of business conduct, and
f. the need to act fairly as between members of the company.
2) Where or to the extent that the purposes of the company consist of or include purposes other than the benefit of its members, subsection (1) has effect as if the reference to promoting the success of the company for the benefit of its members were to achieving those purposes.
3) The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company."
The directors will indeed have to “promote the success of the company” but this is “for the benefit of its members as a whole” which is what all of us as members should want.
There are other things the directors need to bear in mind, listed in (a) –(f) of subsection (1) above. This includes both things which most of us would want anyway, and things which in practice are likely to be irrelevant. For example, we do not have employees.
Subsection (2) refers to other purposes we have which are not directly member focused, such as our objective to promote the playing of Go in the UK.
Accordingly, we regard this concern as falling away completely once you understand the company law provisions properly.
We thank those members who have provided valuable feedback on our initial proposals. These comments were all considered very carefully, and allowed us to significantly improve our initial proposals. The proposals were frozen on 26 April so that members can be confident that there was no change of which they are unaware before the AGM.
We published all comments on this web page, identifying the author, along with our response if appropriate.
President, on behalf of the BGA Council
Last updated 8 Junel 2022