If you are ‘ltd’ to share value, you should be able to keep your house etc.!
I don’t think so if you are the pilot.
What would happen is that indeed the ltd co (the operator) will become insolvent (as a result of the claim being bigger than the insurance cover), an administrator will be appointed, he will sue the pilot personally (in his capacity as the person responsible), and the pilot’s Trustee in Bankruptcy will strip the pilot’s estate.
There is no known way in the UK (or the USA – pilots there looked into it closely) to shield your assets from your actions IF you are held liable for it in the first place. I would be surprised if any modern country made it possible. It would be a public policy nightmare, a free for all for all kinds of conmen, etc.
It has never, as far as I know, been tested ,but if they pierced the ‘corporate veil’ for a ltd aircraft group, the whole business world would colapse.
I agree.
A Ltd Co appears to provide protection from the actions of other shareholders.
There is an counter argument that IF the insurer failed to cover the claim then the Directors can be held liable for not having done their job and obtained adequate insurance, but that’s a bit far fetched.
An LLP is transparent for tax purposes, and avoids BIZk questions. It should also give limitation to personal liability. There may be other advantages or disadvantages!
In the UK an LLP works well. But if you are trying to get business tax treatment it needs to be a real business. Particularly if you want to reclaim VAT. BIK questions don’t arise with an LLP. It has similar protections for the partners.
The best way to deal with liability issues is to have good insurance.
I vaguely recall reading that an LLP has to meet a stricter test when it comes to the business model being viable.
A Ltd Co doesn’t need to be set up to make money, in order to get the liability limitation benefit. Obviously the tax people hate a corporate structure which gives the owner some benefit in the amount of tax paid, and will try to attack it (legally, or via their favourite method of opening an “enquiry” and running it for a year or two until you buy them off with a big cheque) but if you aren’t doing that, they won’t be interested.
The last time I had anything to do with BIK (about 10 years ago) they told me it was OK if all people flying the plane were shareholders in the company. That is how most UK syndicates who use a Ltd Co are structured. Of course that won’t be the case if you set up a rental scheme, or some sort of “zero equity” setup where each pilot buys an “hour block” which entitles him to fly X hours a year. The “147” operations (SR22) were doing that and people I know did wonder how they structured it. One obvious defence would have been for the owner of the business to have no interest in flying and have obviously no access to the aircraft i.e. have no pilot’s license etc. The tax people hate any business which the owner enjoys (tax inspector’s envy) so that defence works well.
HMRC can be hopelessly clueless and disorganised.
I administrated an aircraft group Ltd. Co. for many years, until we sold the aircraft and wound up the company in 2012.
Some two years later, I had a knock on my front door at home one lunchtime from a lady who announced that she was a tax inspector, and said that she had come to collect many years of PAYE tax and national insurance deductions and dividend payments from the company concerned which were due to the revenue and which had not been paid.
I told her with some incredulity that the company had been an aircraft holding company only, that it had no employees, that it did not trade in any accepted sense of the word, that it had never ever paid anyone a penny salary or dividend of any sort, that it had accumulated losses of well over £100,000 on liquidation, and that it had been wound up two years previously and was no longer in existence.
She could not grasp the idea of a company which existed on the basis I had described, and only after a lengthy telephone conversation with her boss in front of me, did she accept what I had told her was true and duly left.
A couple of weeks later HMRC sent me instructions on how to amend the PAYE tax codes of all the company employees!
Do you have to convince HRMC that the aircraft is to be used by the business?
It is strictly a decision for the directors of the company. If they determine that it is in the interest of the company to operate an aircraft, there’s nothing much that HMRC can say about it. Their job is to tax our profits, not to tell us how to earn them.
That said, it might be easier for, say, a European wholesaler, an arms dealer, a farmer or a construction company to come to such a decision than a high street hairdresser – unless he had shops in Ramsey, Stranraer and Bushmills.
I thought I might have a quick go at the issue of a limited liability company protecting the pilot / family from claims. It is a position often recited, but I think it may be dangerous.
The pilot of a commercial airline is found to be negligent. It is quite clear that he is an employee of his company. There is a master servant relationship. The sole reason he is the pilot it to attempt to generate a profit for his employer and to enable his employer to conduct their business. A claimant is concerned with financial gain. On the one hand the company will be very well insured, will be anxious to settle, will almost certainly be asset rich and will, almost certainly, be in the “frame” anyway because it is likely some of the reasons for the pilot’s negligence can be placed at the employer’s door. Therefore regardless of whether or not there might be a claim against the individual that claim is almost never a consideration. We have seen many recent cases.
On the other hand where a group of individuals operate a limited company the arrangement is obvioulsy very different. The pilot is not an employee and there is clearly no master servant relationship. Since it is usually the king pin of any group company that the company does not seek to make a profit (the implications of which I possibly know rather more about) clearly the pilot is not flying for the business of his master. Moreover, it is likely to be obvious that the company has almost no assets, other than aircraft hull and if this is charged to the shareholders (as it should be) then even that asset is of no value. Chances are the company’s only asset is its insurance policy which may or may not be adequate. From a practical viewpoint it will therefore be far more attractive for a claimant to bring an action against the pilot if negligence can be proved. If successful I suspect the the limited company would offer no protection. Proving negligence is of cource very difficult, given that in most cases it is very difficult to prove what actually took place. However it does occur to me that if toxicolgy where to indicate the pilot was drunk in command for example there would be good cause.
I would be interested in your views, but it seems to me that for the typical non profit operated group, whether the group is run as a limited liability company or not the corporate veil is unlikely to offer much if any asset protection if the chips were really down and there is clear evidence of pilot negligence, and the insurers resist the claim for what ever reason.
This must clearly depend on the jurisdiction we are speaking about, but e.g. in Germany, in a non-limited company (even if the owners weren’t aware they were creating a “BGB-Gesellschaft” just by operating an airplane together), every group member may be held accountable for the liabilities of his fellow co-owners to the full extent of his private assets and beyond. This is where a limited liability company makes sense, not to protect the pilot, but the others. I think that has been stated elsewhere in the context of a British Ltd. (was that on the syndicate thread?), so it may be well a universal consideration.
In an accident the claimant goes after the insurance. If the insurance is adequate the pilot is not likely to be hit with a claim as there is no point. No corporate structure can completely protect a pilot.
Sorry, not intended to be taken as pedantic because i know what you mean, but the claimant acts against the pilot, who refers the claim to his insurers who may or may not settle and or fight the claim on his behalf. I agree if the pilot is insured the claimant will effectively knock on the insurance door first.
