Women’s Flat Track Roller Derby Magazine
Lorna Boom, Rat City Rollergirls
WHO OWNS YOUR LEAGUE?
Most modern roller derby leagues pride themselves on ascribing to a “For the Skater, By the Skater” philosophy. They shun the notion of having a rink manager or a promoter-type league owner. However, many leagues may not realize that their registered business structure may not match their philosophy. Most roller derby leagues are registered as one of several common business types: Sole Proprietorship, Partnership, Limited Liability Company or Cooperative or Non-Profit Organization.
(Individually Owned – For Profit)
Sole Proprietorships are owned and run by one individual who is personally liable for all debts incurred by the business.
(Individually Owned - For Profit)
Partnerships are composed of two or more persons (usually not a married couple) who agree to contribute money, labor, or skill to a business. Each partner shares the profits, losses, and management of the business and each partner is personally and equally liable for the debts of the partnership.
Limited Liability Company or Cooperative
(Corporation – For Profit)
LLCs are formed by one or more individuals or entities through a specially written agreement which includes provisions for membership, management, assignability of interests, and distribution of profits and losses. LLCs are permitted to engage in any lawful, for-profit business or activity other than banking or insurance. Cooperatives differ from the traditional corporate business structure in that they have members who share decision-making authority instead of shareholders who rely on the Board of Directors to make decisions.
Non Profit Organization
(Corporation – Not For Profit)
NPOs are created by one or more individuals and their purpose is typically to further a goal or ideal rather than to generate profit. Many non-profits serve the public interest, but some engage in private sector activities.
Individually owned and operated companies are inexpensive to register, simple to operate, and often enjoy greater flexibility of management (no need for bylaws or complex governance structures), fewer legal controls, and fewer taxes. In contrast, a corporation is a more complex business structure which has certain rights, privileges, and liabilities beyond those of an individual. Doing business as a corporation may yield tax or financial benefits such as limited personal liability, but these can be offset by potential drawbacks, such as increased licensing fees or decreased personal control. Additionally, corporations typically have a clearly defined governance structure, like a Board of Directors, which is responsible for oversight of the company.
As Do-It-Yourself (or DIY) organizations, many derby leagues are formed by would be rollergirls who are hell bent on building a team or league, but who frequently embark on their venture with little or no start-up capital. Registering as an individually owned business is often the quickest, easiest, and least expensive way to establish a business. Unfortunately, many individually owned leagues have not taken steps to protect their league and its members against some of life’s most common financial and legal tragedies.
Risks of Individual Ownership of a Derby League
While it would certainly be a suck-worthy situation if your league’s president were crushed by a bus or decided that she didn’t want anything to do with the league, and it might even be emotionally stressful to the whole league if she were going through a heated divorce battle, the legal and financial ramifications for the league could be extremely serious and should not be ignored. Most state laws do not provide any recourse for the members of an individually owned league in the event that the registered owner gets divorced, dies or decides to dissolve the business.
A disgruntled spouse entitled to half of the business or devastated family members entitled to all of the business are probably not the best thing that could happen to your league. Unless the new owners are willing to give the business to the skaters without any strings, you are looking at finding ways to purchase the league, re-establishing it as a new business entity, or learning to love your new owners. In the later case, you simply have to cross your fingers and hope that they don’t want to participate in making business decisions or expect a cut of any profits. An ideal situation this is not, even in the best of times.
While it is human nature to assume the worst will always happen to someone else, it makes good business sense to take some simple precautionary measures to ensure that the future of your league is as secure as it can be. If for some reason your league is unwilling or unable to change its business structure from an individually owned entity to a corporation, there are a few steps that can be taken to reduce the risks associated with divorce, death or dissolution.
State laws on equitable distribution, division, or community property that would otherwise dictate how assets should be handled in the event of a divorce can be overridden with a postnuptial agreement. To ensure protection of your league, the postnuptial agreement must provide that the business interest remains the separate property of the owner spouse even if the non-owner spouse provides help (directly or indirectly).
Buy-sell agreements are a type of contract that deals with the death of a business partner. Under this type of contract, when a business partner dies, her share in the company is sold back to the remaining partners. However, those partners must have the money to make the actual purchase. The most common way to ensure that there are funds available is to purchase a life insurance policy for each of the businesses owners. If a business partner dies, the funds from the policy are used to buy her share of the business from her estate. It is important to note that this type of agreement must be reviewed annually in order to adjust for the current value of the business.
Any time a partner leaves a business, the partnership is, in essence, dissolved. However, the remaining partner or partners may carry on business as usual after a dissolution agreement is signed. The agreement should set forth terms under which the partner is leaving. It should clearly state any property of the business that the partner is taking with him/her, the rights of the business to retain present customers, any monetary terms agreed upon, who retains the right to the name of the business, and any other key points which would allow the business to continue.
While templates for these types of agreements can be found for free online, only your lawyer can answer your business’s legal questions and verify the types of agreements that are appropriate for your league and its ownership. Having legally binding agreements in place can go a long way toward protecting the skaters of an individually-owned league, and owners who take the time to prepare these agreements clearly are operating their business with the “For the Skater, By the Skater” philosophy taken to heart.