In the current economic climate, many private golf and country clubs are struggling to retain and attract members.
Current club members may still be reeling from the results of previous economic conditions and the effects on their investments and businesses, while younger generations usually targeted for new memberships may have different financial goals — such as saving for their children’s college tuition or purchasing a larger home.
As a result, many clubs are faced with unexpected budgeting challenges, forcing them to consider drastic measures such as selling, merging with another club or dissolving completely. Before making an irreversible or unpopular decision, club members and owners should consider the following suggestions when evaluating their options.
* Identify the goals. Do members want to continue the club or disband it altogether? Should it remain a private club or reorganize as a public facility? Would expansion of or improvements to club facilities impact its membership?
* Communicate. Clubs are filled with successful, energized and pragmatic members, each with a strong opinion of the right future for their club. It’s important for club leaders to build consensus with them by sharing information, discussing difficult issues and listening to their concerns.
* Think ahead. Do a title and lien search, review existing contracts (such as leases) and consider the club’s permits, including liquor permits. State law requirements for the transfer of liquor permits can be strict, and the process may take months.
* Identify potential liabilities. The club and its owners will be asked to make legal representations concerning the operation of the club and its assets, which may include environmental matters. If the club is delinquent in the payment of any taxes, clean it up now.
* Understand the rights of the member and shareholder constituents. Members in nonprofits may not be able to benefit from any appreciation coming from a sale of the underlying assets. Shareholders in for-profits often enjoy greater rights than members in nonprofits, including the right to dissent from a vote and contest the fair value of the shares.
Don’t rely on club lore with respect to such rights. Do your homework and consult the club’s organizational documents.
* Get your corporate house in order. Dust off and review your corporate record books. Make sure there is a complete and accurate list of all members and shareholders with current addresses — you’ll need it to send meeting notices or proxies.
Check that formalities have been followed in the election of officers and directors. While you’re at it, it’s a good idea to confirm that the organization is in good standing on the records of the state.
* Tax consequences matter. Plan ahead to avoid the multiple-entity format of many clubs that can create double and triple tax consequences. In-kind payments can create tax without cash — an unhappy surprise for club constituents. Keep the tax advisers close and informed.
* Know your structure and define the differences. Is your club a nonprofit or a for-profit entity? The club’s real estate is often held in a for-profit enterprise with shareholders, while the club is a nonprofit corporation with members. Rights of members in a nonprofit are different from those of shareholders in a for-profit, as discussed above.
* Consider director and officer insurance. D&O policies will protect against lawsuits filed alleging breach of fiduciary duty, errors and omissions and other wrongful acts. If you already have it, review your policy carefully.
* Decide. This may seem to be statement of the obvious, but when faced with dissension, it may be tempting to do nothing and leave things as they are. Strong, fair-minded, cohesive leadership working with informed constituents can bridge near-insurmountable obstacles to bring about an acceptable result.
Robert P. Reffner is a partner with Brouse McDowell. Reach him at (330) 535-5711 or [email protected]. Joy A. Moxon is an associate with Brouse McDowell. Reach her at (330) 535-5711 or [email protected].