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Timeshare Clubs

Timeshare clubs can come in many guises and in different jurisdictions. The main bulk of them are either Limited Companies or Unincorporated Associations (EU).

 

UA’s is not a Limited Company however in this article are referred to as a club.

 

This notation:- focuses primarily on what UE are, how they are structured and governed.

 

What is an Unincorporated Association?

 

“An ‘unincorporated association’ 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, e.g. a voluntary group or a sports club.

 

You don’t need to register an unincorporated association, and it doesn’t cost anything to set one up.

 

Individual members are not generally personally responsible for any debts or contractual obligations. 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/club does start trading and makes a profit, Corporation Tax will be due in the same way as a limited company. That said it is unlikely that

 

The UA is the legal form commonly adopted by members’ clubs, sports clubs, charities and other not-for-profit organisations. Its lack of discrete legal identity is at the root of many of the problems that third parties encounter in dealing with such organisations. ”

 

In many cases, a small timeshare membership may begin life as a UA because its structure is cheap to set up and administer. The Timeshare club can be run with relative informality, but as its membership develops and its dealings become somewhat more complex members generally adopt more certain and regulated forms such as the Limited Company.

 

There is no one size fits all or indeed a  statutory definition of an UA.

 

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 club as a “creature of contract“, where the contract in question is made between the members of the timeshare club. A similar and generally better definition appears in the case of  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 an unincorporated association 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.

Rules of Timeshare Club (UA)

 

A key principle for a club is that they are governed by constitutional rules fashioned by the membership as a whole and representing the terms of the bond between them. There is no legal obligation for these rules to be transcribed. As clubs are creatures of contract, it is theoretically possible for an club to be based on an oral set of agreements.

 

Form and Content of the Rules

 

There are no guiding principles, either in statute or case law, on the form, formation or content of an unincorporated association’s rules. This means that if a founder member makes the rules they can make up any rule. That explained the rules will have to pass a test of fairness. Timeshare Clubs are meant to be fair and ultimate flexibility so as to meet ever varying needs of the association.

 

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 an unincorporated association (see, for example, Woodford v Smith [1970] 1 WLR 806, where the High Court had to fill in the gaps or 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 fairly governed.

 

Where a timeshare club needs are quite detailed and complex guidelines to govern some of its complexed functions are needed, it may be more practical to set up a management committee and give that committee power to make bye-laws. The transference of the power creates a lot of problems in timeshare as the resorts or indeed the manager begin to run the club for the purposes of the resort developer instead of the members. In this event and if proven the committee and the managing agent may be liable for a breach of duty or torturous interference.

 

Any unincorporated association’s 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 assert that the rules of the club are complied with, just as a party to a agreement 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 any founder member 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 the association), 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 association and form a new one with revised rules.

 

Members’ rights

 

As the basis of a member’s right is contractual, what rights he has will depend on the rules of the Club. However, some statutory considerations will also apply.

 

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 subscription for a period of, say, three years, this could be seen as an implied resignation (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 shall not be individually 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 (see Liability below).

 

Expulsion from the Club

 

A member cannot be expelled from a club unless the rules allow it. Even where the rules do provide for expulsion, the association 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 Courts’ Role

 

The courts will not generally consider appeals by members against the decisions of a club. Most decisions of a 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. Recently MacDonalds change the objects with less than a 100% of the votes. Clearly this if challenge could be thrown out by the court as the clubs should be liquidated.

 

Contractual Liability

 

It is not possible to contract with the unincorporated association itself; nor is it possible to contract with the members from time to time.

 

Tortious Liability

 

A club could become involved in a claim in tort because of something that happens on the association’s premises or because of the actions of members. The association 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 association premises (although see below), and it could be argued that all members are collectively the occupiers.

 

Taxation

 

An unincorporated association comes within the definition of “company” for the purposes of the Corporation Tax Acts (s 1121, Corporation Tax Act 2010 (CTA 2010)).

 

Specific exemptions.

 

Sports and timeshare clubs that meet certain criteria can register with HMRC as Community Clubs; registered clubs will be exempt from corporation tax if the club’s UK trading income does not exceed £30,000 a year and the whole of that income is applied for qualifying purposes (s 662 CTA 2010)..

 

VAT liability

 

An unincorporated association 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 an association supplies taxable goods or services to its members in excess of the VAT registration threshold, it will have to register for VAT.

 

Alternative structures

 

Organisations set up as unincorporated associations 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.[1] 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.”

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