Limit Your Liability If You Offer To Help Out
28 August 2015
We were recently asked to advise a Committee of volunteers who are in charge of a seasonal business. The Committee members are also all customers of the business who had offered to help run it because somebody needed to if the business was to survive and nobody else was willing. At our meeting with the Committee, three things became apparent quite quickly:
- The business had no money in the bank and was about to enter a time of the year where it would have no income but would still have ongoing running costs to meet;
- As the business was structured as an Unincorporated Association it had no separate legal identity and so the Committee members were personally liable, jointly and severally, to pay the running costs if the business couldn’t; and
- Included in the running costs were the salaries due to the business’ employees who were all effectively employed by the Committee members personally as a result.
The Committee members were all shocked to learn this and said that they would never have agreed to get involved if they had been aware of this potential liability. None of them had taken advice on the possible pitfalls, or had been encouraged to do so, before joining the Committee. Thankfully, a benefactor is prepared to assist with funding the business and ensure that it is run profitably in future. Part of this process will involve switching the business to an alternative legal structure that will limit the liability of the people running it.
However, not all stories that we deal with have such a happy ending. Therefore, if you or any of your clients are asked to help run a Voluntary organisation, please think twice about getting involved if there is a risk of becoming personally liable for other people’s financial mistakes and the organisation’s legal structure prevents that liability being limited. Furthermore, if you know of anyone who didn’t do this and wishes they had with hindsight, please do not hesitate to contact any of our team and we’ll be happy to help. Details can be found by clicking on ‘The Team’ above.