From Group owned to Ltd Company

[Flybywyre]

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

[robin]

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.

[S-Works]

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.

[Flybywyre]

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

[possel]

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.

[S-Works]

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

Actually all of the directors are liable for the actions of the company. So not just the pilot of the aircraft. I looked into this in great depth a couple of years ago, but the tax implications were unpleasant and there is no hiding from liability in the case of negligence.

[mm_flynn]

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.

[Flybywyre]

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.
This is also my understanding. Would be nice to hear from someone in a group that is run as Ltd company.
Regards
FBW

[slim_slag]

Under what circumstances would you see somebody coming after a group member who wasn't in the plane? What does your insurance policy cover you for?

[Flybywyre]

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.

[mm_flynn]

Under what circumstances would you see somebody coming after a group member who wasn't in the plane? What does your insurance policy cover you for?


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.

[robin]

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.

[Flybywyre]

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
That is exactly the point I am making. You are correct it would be the estate of the individual concerened, which wouldn't be any good if they are living in a bedsit and had no estate, or had just bought a house and were mortgaged up to the eyballs with no assets.
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.

[IO540]

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.

[Flybywyre]

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

[robin]

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.

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.

[bookworm]

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.

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.

[grow45]

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.
Dont think the fact that other group members are a party to the incident is relevant and neither is negligence (unless the imnjured party on the ground was negligent. An aircraft owner has absolute liability for any damage caused by his aircraft.
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

[robin]

B*gg*r me.

[bookworm]

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..." ;)

[IO540]

That said, 3rd party (ground) damage through a premature termination of a flight is extremely rare.

I believe Lockerbie is the most recent 3rd party fatality in the UK, and a 747 is not exactly "GA".

Very rarely is there other (lesser) damage; there was a Seneca (G-OMAR) in the roof of a house in Sussex a few years ago, so that would have been a few tens of grand to repair. He ran out of fuel shortly before landing.

Damage to other planes while taxiing is very common and that is probably my biggest worry in flying. But they don't cost much to fix (only many thousands perhaps) and one has insurance for that.

IMHO, the most likely scenario for an uninsured loss is taxiing into a bizjet. Repairing a pressurised hull could cost huge amounts of money, even millions. One would qualify for a prize for doing that though :)

One is far more likely to get cleaned out by marrying the wrong woman, and divorcing. The chance of that is about 30-40%; marriage is by far the most risky investment. It's OK if you are 20 or 30 but you can't really afford to get wiped out once past about 40.

[robin]

One is far more likely to get cleaned out by marrying the wrong woman, and divorcing. The chance of that is about 30-40%; marriage is by far the most risky investment. It's OK if you are 20 or 30 but you can't really afford to get wiped out once past about 40.

Ooooohhhhh - how true:D

[Flybywyre]

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..."
Which leads us nicely back to my original post :ok:
Regards
FBW

[Humaround]

IO540

I think you'll find that the actual marriage certificate makes little difference in that situation... at least a lot less than it used to.

[slim_slag]

Would that 1982 bit of law actually stand up though? A lot of legislation has been passed since then, including that human rights act which provides protection against having your property taken away unless it's in the public interest. That 1982 law seems pretty unreasonable, it cannot be in the public interest to have people losing their house because somebody else screwed up. Wouldn't insurance cover the costs of defending yourself against some claim like that?

[TheOddOne]

We formed a Ltd Company for our Group many years ago. It's the Company that owns that aircraft, not the members. They pay an annual membership and their financial liability is limited to one pound sterling (£1). There is a board of directors and there is a full audit trail through committee and AGM minutes of all our decisions so that anyone can see what we're doing. We submit fully audited accounts to Companies House every year.

It costs about £200 to set up a Company. Do get a proper accountant to do this. Auditing books costs about £400 a year. We're lucky to have a Group member who does ours for us for nothing. All directors give their services for free.

Having the Company own the aircraft also means it's a lot easier when members join or leave - no hunting around for someone else to buy the share.

You might want to think about the wording in your Articles and Memoranda of Association (Arts & Mems). You might include a paragraph about accumulation of funds against future expentiture (engine replacement fund, for instance) but how this isn't about making excess profit, so as to satisfy any Her Majesty's Revenue & Customs (HMRC) requirements. Normal accounting practices should take care of this in the various depreciation accounts. Consider getting your Treasurer to use a decent accounts package, such as QuickBooks, or Sage (I use the latter). You can also put in your Arts & Mems other aspirational stuff about offering flying training etc if your Group should blossom; also covers you if someone wants to do an IMC rating and you import an instructor for the purpose. This will also cover you for doing your biennial flight with an instructor on the a/c instead of having to go to a school.

You MAY choose to be VAT registered, especially if you're planning to buy another a/c any time soon, but it's a bit like a tiger 'anyone can ride a Tiger, but you can never get off'. On a year-by-year basis, you might find VAT isn't worthwhile, some things aren't VAT-able, such as insurance. If you've only one a/c, you'll most likely be under the threshold. If I were doing it from scratch now, I wouldn't do VAT.

Insurance. Our broker seems to like Ltd Companies to work with; can't say if the rate gets better, but we can get a wider spectrum of pilots on the policy. Basically, it says 'any pilot that we approve', no minimum hours or constraints on use (within reason!)

If you want any more details, PM me,

Cheers,
TheOddOne

[Flybywyre]

Thanks for that...........
Our current group insurance allows for any pilot, no minimum hours, biennial checks, IMC/night and continuation training etc, which is pretty much the standard cover. I have just renewed ours using a different broker as the usual one took it upon themselves to increase our premium by 26% and thought that we would wear it. I shopped around and have got it back to what we payed last year :ok:
Wouldn't insurance cover the costs of defending yourself against some claim like that?
That would depend on the size of the claim and the ammount of cover you have. A lot of third party cover is for up to £2m, which should you be faced with a claim for compensation/damges may not go very far at all these days, especially if it was a "group action" claim (on behalf of numerous others).
As I said previously this excercise is purely to afford some protection to members in the event of an incident in view of the parasitic "no win no fee" cowboy legal oufits out there.
Regards
FBW

[TheOddOne]

If it helps, we paid £2483.04 for our PA28 Warrior with an agreed hull value of £40k, £3 million public liability etc. This included insurance tax and all discounts.

TheOddOne

[Flybywyre]

Ours is a PA28-140. Hull £30K liability £2m......... £1398 including insurance tax and payable over three months at no extra cost.
Regards
FBW

[TheOddOne]

I think I'll be shopping around come renewal time!

Thanks,
TheOddOne

[Flybywyre]

Check your PM's :ok:
Regards
FBW

[Keef]

Our group has been a Ltd Co since forever. The key words are "limited liability" - which is why we did it that way. The Co cost us £75 (prices have probably gone up since then), and because we have a relatively small turnover (one Arrow III) we don't have to have the books audited.

To be honest, I think the Ltd Co has many advantages - I'd not do it any other way.

[IO540]

VAT reg is a difficult one.

If you set up a group which is non profit making then you won't be able to claim back the VAT because it isn't a "real business".

Also, every flyer needs to be invoiced at £X+VAT which makes all flying 17.5% more expensive because only a proportion of expenses will carry VAT. For example, if there is any pilot maintenance, or anything else done by private individuals either for free or for cash (and an awful lot of very good and very competent people work for cash) there is no VAT to claim back on that. But you still have to invoice VAT on all sales.

In the long run, VAT reg is probably not worth doing. The major incentive for it is to reclaim the initial purchase VAT, but for any plane that has is being imported into the UK, one would import via Denmark and that takes care of that.