Club Members Responsible for Debts

Monday, March 19, 2007

Make certain you know the reputation and stability of the clubs you join, or if they go out of business, you may find yourself shouldering some of their debt. The reason for this is because many of these clubs are unincorporated and as such, there is no legal entity to shoulder the cost. What this means for members is if the club closes owing money, a creditor can legally go to the individual members and not just the assets of the club itself.

Both the Working Men's Club and Institute Union have written to over 1,000 clubs urging them to incorporate so that their members cannot be personally sued in the event of a default. Individual members of the clubs are also working on their own, contacting their clubs and asking them to change their status. Whether it seems to be just or not, the truth is that if you join a club that is not incorporated, you and the other members can be held legally responsible for its debts. If you are an officer, as in the case of one woman who was treasurer and signatory on the loan, you can lose your home or part of its value to cover the club's debts.

The problem with this kind of arrangement is that unless the clubs choose to incorporate, they stand to lose their membership, and people will become very fearful of joining any club that is not incorporated. They wish to protect their own personal assets, and if that means not joining unincorporated clubs, that is the route they will take. It's important for a club operator to understand that unless he incorporates, he runs the risk of holding his entire membership personally responsible for any debt that the club incurs that it is unable to pay or in the event of closure.

People are beginning to understand what this means, and are urging their clubs to change its status so that members are not taking any risks when they join. Whether it's a sports club or a social club, it's important that the founders or owners set its status so that the club shoulders the responsibility of its debts and not its members. Members do not join clubs to go into debt for something they did not create, so it's unfair of any club operator to operate his or her club in such a way that it could jeopardize the financial and credit standing or its membership.

In order to protect your assets, make sure that the club you join, social or sports, is incorporated. Even if it has been in operation for many years, there is always the possibility of something happening, such as the owner becoming too ill to run it. If the club you are considering is not incorporated, find a club that is. If you own a club and aren't sure how to incorporate, check with your accountant or your lawyer for the proper paperwork and procedures for changing the status of your club.