An unincorporated group is not a partnership and therefroe there is no joint liability for the acts of one member. There are several court authorities on members clubs, which are much the same, which confirms this. So, the argument that "we'll all get sued unless we are a company" is not correct. On the other hand, directors of a limited company will not have personal liability unless, broadly, the company trades whilst insolvent or the directors are personally guilty of fraud towards the company.
IO540: The 5% share provision is in article 130 of the ANO and refers to the ability of group members to share costs and still be a private flight. Renting an aircraft on a public C of A is rather different, since you are not dealing with remunerating the pilot for the particular flight, which was the basis - I think - of the original post. Indeed, quite the reverse, as it is often the pilot who is paying for the use of the aircraft in that case.