From Group owned to Ltd Company
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From Group owned to Ltd Company
Due to the ever increasing tendency for people to seek unnecessary claims for compensation through parasite "no win no fee" legal outfits, I am considering taking our long established group of nearly 20 years from a standard group operated aircraft to a Ltd company owned aircraft. In the past I have always been against this but times have changed and I feel that the extra costs and work involved in operating as a Ltd company are now justified given the protection afforded to innocent members of a group owned aircraft should something untoward happen.
I would be very grateful to anyone that can offer any advice on how to go about doing this. Please feel free to PM or email me.
Regards
FBW
I would be very grateful to anyone that can offer any advice on how to go about doing this. Please feel free to PM or email me.
Regards
FBW
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Are you really sure that operating the group as a company gives you any more protection against claims? I'm not sure what sort of claim you have in mind that would involve 'innocent members' of the group.
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It gives you no more protection than you have in the group. If there is a case of negligence then the directors will be persused anyway.
It is a bit of a fallacy that a Ltd Co will protect you.
It is a bit of a fallacy that a Ltd Co will protect you.
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In the worst case scenario, plane crashing into schools etc,etc, as I understand it in a group owned aircraft any claims for compensation would be payable by all the members of the group by what ever means. In the case of a large claim this could result in members having to sell their houses to meet that claim and in the event of none payment being made bankrupt. In a Ltd company where all the members are registered as directors then the most they could loose is the value of their holding/share in the company, which in this case would be the aircraft and assets of the group. However this WOULD NOT protect the individual flying the aircraft, only the other members of the group.
As I say this is my "understanding" of things and I would be pleased to be wrong. Informed replies from people with some legal knowledge and expertise of this sort of thing would be most helpful.
Regards
FBW
As I say this is my "understanding" of things and I would be pleased to be wrong. Informed replies from people with some legal knowledge and expertise of this sort of thing would be most helpful.
Regards
FBW
I think you want to carefully check out the Inland Revenue views on limited companies - I think they have taken a stricter view in the last few years and consider that the pilots are deriving a "benefit" from their position and so this incurs a tax liability!!
If this is not the case I would certainly want to know the precedent and make sure it applied to me.
If this is not the case I would certainly want to know the precedent and make sure it applied to me.
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In the worst case scenario, plane crashing into schools etc,etc, as I understand it in a group owned aircraft any claims for compensation would be payable by all the members of the group by what ever means. In the case of a large claim this could result in members having to sell their houses to meet that claim and in the event of none payment being made bankrupt. In a Ltd company where all the members are registered as directors then the most they could loose is the value of their holding/share in the company, which in this case would be the aircraft and assets of the group. However this WOULD NOT protect the individual flying the aircraft, only the other members of the group.
As I say this is my "understanding" of things and I would be pleased to be wrong. Informed replies from people with some legal knowledge and expertise of this sort of thing would be most helpful.
Regards
FBW
As I say this is my "understanding" of things and I would be pleased to be wrong. Informed replies from people with some legal knowledge and expertise of this sort of thing would be most helpful.
Regards
FBW
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I am pretty sure the BIK rules only are a problem if the company is set up to do something else and happens to have an aircraft which can be viewed as at your disposal.
In a Group it should be fairly straightforward to demonstrate that the company runs at breakeven and everyone who uses the aircraft pays the full economic cost, therefore there is no benefit derived beyond that paid.
In a Group it should be fairly straightforward to demonstrate that the company runs at breakeven and everyone who uses the aircraft pays the full economic cost, therefore there is no benefit derived beyond that paid.
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In a Group it should be fairly straightforward to demonstrate that the company runs at breakeven and everyone who uses the aircraft pays the full economic cost, therefore there is no benefit derived beyond that paid.
Regards
FBW
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In the circumstances where the individual flying the aircraft was killed in an accident involving the aircraft or survived but was unable to meet the costs of any actions brought against him. In particular a large "group action" claim that would exceed the limitations of the insurance cover.
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My understanding is that the owners of the aircraft are jointly liabile with the operators/pilots for damage done on the ground. In the case of substantial loss beyond the insurance cover, the pilot and his/her estate would be sued as well as the owner of the aircraft.
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I may be wrong here, but in such a case, it is the estate of the individual that gets taken to the cleaners, not the other members.
The only way that it could happen is if there is negligence on the part of the group, but that would be the same with the company route.
Our group rules state clearly that if the PIC is responsible through bad flying or if, say, they fly without a medical or outside the privileges of their licence, so the insurance becomes void, they are totally liable for any costs due.
The only benefit we could find in going down the company route was that if one of the members became bankrupt their share would form part of their assets, and the aircraft could, perhaps, be grounded by the liquidators.
The only way that it could happen is if there is negligence on the part of the group, but that would be the same with the company route.
Our group rules state clearly that if the PIC is responsible through bad flying or if, say, they fly without a medical or outside the privileges of their licence, so the insurance becomes void, they are totally liable for any costs due.
The only benefit we could find in going down the company route was that if one of the members became bankrupt their share would form part of their assets, and the aircraft could, perhaps, be grounded by the liquidators.
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I may be wrong here, but in such a case, it is the estate of the individual that gets taken to the cleaners, not the other members
Alternatively, and quite a likely one, the claim could way exceed the persons estate in the case of death or his assets if he survived. The next port of call would be the other members of the group.
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In the worst case scenario, plane crashing into schools etc,etc, as I understand it in a group owned aircraft any claims for compensation would be payable by all the members of the group by what ever means. In the case of a large claim this could result in members having to sell their houses to meet that claim and in the event of none payment being made bankrupt. In a Ltd company where all the members are registered as directors then the most they could loose is the value of their holding/share in the company, which in this case would be the aircraft and assets of the group. However this WOULD NOT protect the individual flying the aircraft, only the other members of the group.
I agree with the above. A Ltd Co should protect shareholders against the actions of others. Insurance should cover it but there is a very small possibility of a claim exceeding the cover (somee millions), or a claim being refused due to some technicality (e.g. the PIC having false documents).
I don't think a Director has any liability in this scenario (merely through being a Director) provided he has fulfilled the duty of his office. IMHO this duty includes purchasing suitable insurance. I discussed this very topic at length with an old insurance underwriter and while he agreed his view was that there was always a theoretical (and in itself uninsurable) liability on the Director: if the damage exceeds the insurance cover, or the claim is disqualified for some reason, then somebody could argue that the Director did not fulfil his duty by purchasing enough cover, or the right sort of cover!
Nothing (other than the insurance cover) can protect the PIC or his estate.
Regards Benefit in Kind, I am well familiar with a case which is currently heading for the Commissioners, and if it is lost then it will have huge implications for any group that uses a ltd co, unless the company is owned by all pilots. Specifically hit will be any setup where say 1 person owns the company (and is a Director), and the company rents it out to others. The Director will be at risk for BIK unless he really has no access to the plane. This particular case had certain provocative elements in it but they are not considered relevant to the facts of the business. Time will tell...
One has to remember the present-day Revenue inspector is often motivated by envy and his tactic is to hit you hard and seek to agree a lump sum settlement (not necessarily related to the facts of the case); then he can move on to his next target. These aircraft cases are always provocative because the default perception is that Mr X has bought a plane and is renting it out merely to reduce his operating costs; that is not allowed. In business, you are allowed to fail, squandering as much money as you wish, but you are not allowed to plan to fail.
What helps massively in this scenario is if the company is paying some corporation tax. However, this is most unlikely since the capital allowances alone on any half decent plane will wipe out taxable profits for many years, and a level of utilisation high enough to cover that will wreck the plane pretty fast. Strictly speaking the Revenue should be happy with the company making "money" however.
Back to the original poster, mu understanding of the case I referred to is that if all flyers own the company then BIK won't arise. But additional safeguards need to be in place; everybody must have equal access (done via a booking website), and everybody is charged the same amount for flying.
How some of the "zero capital" groups I see around avoid Revenue attention, I don't know. Maybe they got good advice, and have Revenue-approved business plans, agreed in advance. I would strongly recommend seeing an accountant who is up to date with the latest practice on BIK.
I agree with the above. A Ltd Co should protect shareholders against the actions of others. Insurance should cover it but there is a very small possibility of a claim exceeding the cover (somee millions), or a claim being refused due to some technicality (e.g. the PIC having false documents).
I don't think a Director has any liability in this scenario (merely through being a Director) provided he has fulfilled the duty of his office. IMHO this duty includes purchasing suitable insurance. I discussed this very topic at length with an old insurance underwriter and while he agreed his view was that there was always a theoretical (and in itself uninsurable) liability on the Director: if the damage exceeds the insurance cover, or the claim is disqualified for some reason, then somebody could argue that the Director did not fulfil his duty by purchasing enough cover, or the right sort of cover!
Nothing (other than the insurance cover) can protect the PIC or his estate.
Regards Benefit in Kind, I am well familiar with a case which is currently heading for the Commissioners, and if it is lost then it will have huge implications for any group that uses a ltd co, unless the company is owned by all pilots. Specifically hit will be any setup where say 1 person owns the company (and is a Director), and the company rents it out to others. The Director will be at risk for BIK unless he really has no access to the plane. This particular case had certain provocative elements in it but they are not considered relevant to the facts of the business. Time will tell...
One has to remember the present-day Revenue inspector is often motivated by envy and his tactic is to hit you hard and seek to agree a lump sum settlement (not necessarily related to the facts of the case); then he can move on to his next target. These aircraft cases are always provocative because the default perception is that Mr X has bought a plane and is renting it out merely to reduce his operating costs; that is not allowed. In business, you are allowed to fail, squandering as much money as you wish, but you are not allowed to plan to fail.
What helps massively in this scenario is if the company is paying some corporation tax. However, this is most unlikely since the capital allowances alone on any half decent plane will wipe out taxable profits for many years, and a level of utilisation high enough to cover that will wreck the plane pretty fast. Strictly speaking the Revenue should be happy with the company making "money" however.
Back to the original poster, mu understanding of the case I referred to is that if all flyers own the company then BIK won't arise. But additional safeguards need to be in place; everybody must have equal access (done via a booking website), and everybody is charged the same amount for flying.
How some of the "zero capital" groups I see around avoid Revenue attention, I don't know. Maybe they got good advice, and have Revenue-approved business plans, agreed in advance. I would strongly recommend seeing an accountant who is up to date with the latest practice on BIK.
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10540...........
Thank you for your detailed and informed reply. For the record all of our members are already equal shareholders, pay exactly the same rate for flying and we all have equal access to the aircraft through an online booking system. I must stress that we are not looking in any way whatsoever at becoming a Ltd company in order to pursue some financial gain, in fact I am aware that the opposite would happen and we will incur additional costs should we decide to go down this road. The ONLY purpose of this excercise is one of concern regarding legal implications should an incident happen to the aircraft.
Regards
FBW
Thank you for your detailed and informed reply. For the record all of our members are already equal shareholders, pay exactly the same rate for flying and we all have equal access to the aircraft through an online booking system. I must stress that we are not looking in any way whatsoever at becoming a Ltd company in order to pursue some financial gain, in fact I am aware that the opposite would happen and we will incur additional costs should we decide to go down this road. The ONLY purpose of this excercise is one of concern regarding legal implications should an incident happen to the aircraft.
Regards
FBW
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But I still don't see why that would stand in law. When the assets of the individual run out, that is an end to it. Other group members are not party to the incident and are unlikely to be affected, although, as you say, that would not stop a vexacious litigant trying it on.
The Civil Aviation Act 1982 makes the owners of an aircraft strictly liable for damage done on the ground. There does not need to be negligence. In the case of a group, where the aircraft is owned in partnership, the owners would be jointly and severally liable. In the case of a limited liability company, the shareholders are only liable to the extent of their shareholding.
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But I still don't see why that would stand in law. When the assets of the individual run out, that is an end to it. Other group members are not party to the incident and are unlikely to be affected, although, as you say, that would not stop a vexacious litigant trying it on.
Part 2 of Section 76 of the Civil Aviation Act 1982 (UK) says that:-
"where material loss or damage is caused to any person or property on land or water by, or by a person in, or an article, animal or person falling from, an aircraft while in flight, taking off or landing, then unless the loss or damage was caused or contributed to by the negligence of the person by whom it was suffered, damages in respect of the loss or damage shall be recoverable without proof of negligence or intention or other cause of action, as if the loss or damage had been caused by the wilful act, neglect, or default of the owner of the aircraft"
In other words it does not matter whose fault it was the aircraft owner is liable. If the owner happens to be more than one person they will be jointly and severally liable meaning the wronged party can sue them all together or just one of them.
g45
FWIW robin, those were also my first words after I learned about the Civil Aviation Act 1982.
My second sentence, a few minutes later was "Hello, I'd like to start a company please..."
My second sentence, a few minutes later was "Hello, I'd like to start a company please..."