USA Law and Practice Contributed by: Irwin A. Kishner, Daniel A. Etna, Joel Wagman and Barry Werbin, Herrick, Feinstein LLP
4. Corporate Structures 4.1 Legal Forms of Sporting Bodies
for this purpose by the foreign person or entity. This avoids the foreign investor from creating a tax pres - ence in the United States and being taxed directly. 4.2 Corporate Governance Codes Governance in sports spans many participants, including players, clubs, local, national and interna - tional organisations, spectators, the media, commer - cial (sponsors), non-commercial interests, and edu - cational and training bodies. Enhancing governance in sports has undoubtedly been a priority in response to the public scandals at the highest levels and bears similarities to the evolved corporate governance standards and expectations applicable to business corporations in the public capital markets. However, in the USA there is no “one size fits all” approach recommending or prescribing governing principles, and, as a result, codes of conduct abound at all lev - els (professional, collegiate and youth). This stands in contrast to, for example, the UK’s Code for Sports Governance, with broad application to all that seek government and lottery funding. In the USA, sports leagues are most often governed according to rules and internal regulatory procedures set forth in league organising documents. Most typi - cally, these consist of league constitutions and by- laws and agreements between the sports league and member teams. The acquisition of and transfers of ownership interests in teams, with or without chang - es in control, are often scrutinised, requiring prior approval involving extensive due diligence regarding indirect ownership interests of prospective investors and business and litigation background and history. This process will often involve the examination of affili - ate relations. In many cases, these documents estab - lish a board of governors comprising team owners or their representatives. These documents provide for establishing and managing league governance and regulatory policies and typically also provide for appointing a league commissioner. The league com - missioner serves as a chief executive officer and is typically responsible for overseeing the day-to-day league operations. League organisational documents and CBAs set forth player and coach codes of con - duct.
Entity selection is an important concern that should be addressed early in connection with the formation of any professional and non-professional sports clubs (amateur athletics) and sports governing bodies. In all instances, limiting liability against legal claims will be of paramount importance, and in the USA will be provided for by resorting, basically, to the use of any
of the following entities: • limited liability company; • limited partnership; and • corporation (publicly or privately owned).
Each of these types of entities is presently represent - ed in all areas of professional and non-professional sports. In the absence of ownership by persons or entities that are non-resident in the USA, the limited liability company form is likely the prevailing form of owner - ship and operation. These are frequently referred to as “pass-through entities” for purposes of taxation, providing for a single level of income taxation while affording their owners the ability to construct crea - tive and sometimes unusual distribution “waterfalls”, directing how various revenue streams are distributed. Generally, they derive from negotiations with inves - tors. The limited liability company is governed by a limited liability company operating agreement and the state laws where that entity has been formed. Essentially, the operating agreement is a contract that provides for nearly unlimited variations of rights and remedies among its owners, which may consist of traditional common equity investors, those with pre - ferred equity investments and those holding hybrid securities (which may be combinations of debt and equity securities). The applicable state law statutes are structured to defer to contractual rights of owner - ship and operation negotiated by the owners. Typically, foreign investment will be made in limited partnerships, which are also formed under state law and are also pass-through entities, with the investment made by a special purpose corporate entity formed
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