Limited Company Status

[greasemonkey]

Hi All
This is an issue which has been covered before I'm sure but can anyone explain to me the benefits of a club/society becoming a company limited by guarantee rather than just staying as a club, and if there are any benifits to just staying as a club/society. The club I am a member of seems intent on taking out extra insurance to cover the 'officers' of the club, that in the event of a legal case it will pay for representation to defened itself, but will not cover the damages that might be awarded following that action particuarly if negligence is proven, and believes that becoming a limited company gives no benefit or extra protection to the members. Can anyone explain the issues to me so I can get them straight in my head at least.

thanks
Andy

[jackrae]

This is my understanding and the reason why Carlisle & District Model Engineering Society (C&DMES) is a company limited by guarantee.

Firstly, I ain't no lawyer !!!

Secondly, it matters not a hoot whether you have fare paying passengers or not. Anyone injured for any reason may sue the pants off your club, and that includes those nice members who would never think of doing such a thing - until they have an accident and some ambulance chasing lawer hears about it.

Clubs which have members have a jeapordy in that each and every member of the club is collectively and severally liable for meeting the cost and awards of any litigation case won against them. This liability extends to your personal assets, home, money, dog, cat etc.

Now for some hypothetical numbers

Say your club is sued for some infringment in either civil or criminal law (the latter covers Health and Safety). Say the sum awarded is 3 million. If say your club has 10 members and 9 of them have total collective assets worth 1 million and you are the lucky rich chappy who alone is worth 2 million. Then they get to lose their collective 1 million and you get to lose your own 2 million.

Rough perhaps but that's how it goes.

Now, if you form yourself into a limited company, or a company limited by guarantee (more later), then it is your company who is sued, not the members. The company assets are the ones that get taken by the courts. As a shareholder of the company you are not personally responsible for the "misdemeanors" of the company.

So what about the club officers (company directors). I believe insurance covers directors liability provided they have not acted negligently or criminally.

To prevent your club having to stick "Limited" after its name you can get yourselves referred to as a company limited by guarantee. You then remain the "Wheeltappers and nerds model engineering society" Directors and members may not take dividends or personally benefit financially and upon wind-up of the club must give the club assets away to a like minded body.


That's the general jist but having said all that I'm sure someone else will put me right. One point worth noting. Insurance companies are in the business of taking premiums, not paying out claims!!!

The downside - simply having to lodge company accounts with Companies House each year (no hassle) and having proper records, risk assessments etc that all business do (should) and which, as a responsible society, you will be doing anyway.

jack

[greasemonkey]

Hi Jack
Thanks for the reply, but does it protect the members personally? If the 3rd party can't claim of the club, surely the next option would be to try and sue the members directly involved in the event that caused the legal action in the first place.

Andy

[alanstepney]

Most clubs are now adopting some form of corporate status.
Usually, Limited Company, but I did read of one that decided to register under the Friendly Societies Act instead, for reasons which I cannot recall.

A Ltd Co protects the club and all the members.

The costs are minimal, and the extra work required is simple.

There is one solicitor who I believe reads this Board and I am sure he will make his views known.

If you check your membership, you may well have a solicitor, or accountant, or even a bank manager, all of whom should be able to give their insight to the issue.

[Geoff]

Hi All,

My local MES has recently de-registered as a Limited Company, but I can't at this time remember the main reason(s) it did so.

Is the general consensus of this Forum of the opinion that it was perhaps a rash or foolhardy action, for whatever reason, to do so? Our Society does not run for the public, and the private club site is used solely by club members and families.

You have me slightly worried

Geoff

[jackrae]

Andy

In an attempt to answer your question I think we have to consider the following ;

As a member of a club which is a limited company you are effectively an employee of the company whilst on company "business". As such, if you exercise a responsible attitude towards your "employers" you will be protected by their public liability insurance.

Say you are the driver of a loco that derails and someone is injured.

There are several scenarios ;

a) You drove wrecklessly by whatever means and as a result was a major contributor to the cause of the accident.

b) The club rolling stock/track/safety procedures were defective

c) The passenger acted wrecklessly and caused the derailment

In all cases, if the passenger tries to sue, the courts (and perhaps the HSE) will consider if the accident could have been avoided. if so the club has a liability.

However if case (c) applies the club may be able to argue that the wreckless act of the passenger was beyond its reasonable control. If another passenger also injured subsequently sues the club as a consequence, it's probably up to the club to counter-sue the original passenger for their actions.

If case (b) then things look bad for the club and the wrath of the HSE may well descend. The Health and Safety at Work Act places a duty of care upon employers (the club) to protect not only their employees but also members of the public - whether involved with the activity of the company (a passenger) or not (a passer by not even on club premises).

If case (a) then the club will still be deemed liable but the club itself may have an opportunity to counter-sue its "employee" for acting wrecklessly (outwith the clubs clearly defined rules of behaviour) (you do have those don't you ?)

If the injured passenger cannot substantiate a prosecution against the company I would say it's very unlikely that they could substantiate another against an individual.

It obviously goes without saying that the operation of trains, or any steam vehicle etc, whether private or public must always be treated with utmost responsibility. You must not endeavour to shirk from your responsibilities by becoming a limited company. The limited company status is merely to protect your personal assets.

We often see comments about the "nonsense" of boiler testing and namby pamby regulations about mustn't do this or that etc. Safety regulations all came about because of past accidents (in many cases fatal). Those who wish to build their own unqualified designs of boilers and run them in their own garden are perfectly at liberty to do so - and face the consequences of personal liability if anything goes wrong. We all do it to greater or lesser extent, whether its in our workshops or up a ladder.

Again I'm sure the lawyer members will put us right. Also bear in mind that the laws of Scotland or Ireland may not apply equally in England/Wales and vica-versa, so specific case law may have to be considered wherever your track is located.

I know it all sounds terrible but it's realy just common sense. Act irresponsibly and you get what you deserve. Act responsibly and enjoy life. The law can serve to protect you as well as.

One of our members, when we were becoming limited, said he only joined the club to have fun - and this didn't seem like fun any more. That single comment really got to me because he had a valid point - until I, and he realised we can still have fun whilst acting responsibly.

jack

[greasemonkey]

Hi Jack
Thats great, thanks very much. I think I understand now. Seems to me that even though its going to mean a little more work in terms of 'proper accounts' and taking full note of all health and saftey issues, which we are pretty hot on anyway, that being a company limited by guarantee is the most sensible way to go when trying to protect members, and enable fun in the safest way possible. As we run in a local park and give rides to the public I think I need to do a little persuading!

thanks
Andy

[greasemonkey]

Hi All
A friend of mine from another model engineering society phoned company house today to ask if they had any advise regarding 'limited company by guarantee' status for model engineering societies. The advise they offered was that 'they recomend any society takes out this status as soon as possible'. Any society that doesn't have this status apparently leaves ALL members at risk from losing everything regardless of how often or not they actually visit the track/site. Just being a member is enough to render you liable in any compensation claim. Is there a legal expert who could comment on this?

thanks
Andy