What protection does a limited company afford to architects?

What protection does a limited company afford to architects?

Postby onq » Fri May 14, 2010 8:33 pm

Does anyone have a handle on what the "limited" actually does for a company of architects?

My understanding is that under normal circumstances it limits the liability of company members to those monies they invested in the company should it go bust.
I understand these people to be shareholders, but what about architects acting as directors and running the company?
I've always wondered does the "limited" aspect
  1. prevent companies from recovering debts from directors who have traded dishonestly
  2. prevent claims for bad design coming against architects
  3. prevent charges arising from fraudelent certification

Anyone know?

TIA

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Re: What protection does a limited company afford to architects?

Postby PVC King » Fri May 14, 2010 8:39 pm

onq wrote:Does anyone have a handle on what the "limited" actually does for a company of architects?

My understanding is that under normal circumstances it limits the liability of company members to those monies they invested in the company should it go bust.
I understand these people to be shareholders, but what about architects acting as directors and running the company?
I've always wondered does the "limited" aspect
  1. prevent companies from recovering debts from directors who have traded dishonestly
  2. prevent claims for bad design coming against architects
  3. prevent charges arising from fraudelent certification

Anyone know?


Limited liability only applies if the vehicle gets into financial difficulty and requires court protection from creditors; there is a presumption that directors as soon as they become aware that the business is unsustainable enter voluntary liquidation; otherwise a creditor who feels the business is unsustainable will bring a court petition seeking adiministrators appointed by the court to examine the companies affairs.

What administration does is primarily protect secured creditors and then distribute the proceeds of unsecured creditors; what it does not do is allow negligent directors off the hook; all professionals need to be careful; The principal is laid out in the case Merrett V Babb 2001; easiest ways around it get pi cover that has an extended run off period and document everything to ensure you are not caught out by an opportunistic litigant; if you are found guilty of fraudulent behaviour your assets will simply be confiscated by CAB.
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Re: What protection does a limited company afford to architects?

Postby onq » Fri May 14, 2010 10:30 pm

Thanks PVC King.

My understanding is that claims against a named defendant for negligence or incompetence in the provision of professional services cannot be deflected by him having acted as an employee of director of a limited liability company.

In other words, the requirement to exercise due diligence and discharge a duty of care follows the person who provides the service regardless of circumstances of employment and/or the existence of a limited liability company.

Is this your interpretation of the comments in the case you cited above?

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Re: What protection does a limited company afford to architects?

Postby teak » Sat May 15, 2010 4:43 pm

My understanding is that claims against a named defendant for negligence or incompetence in the provision of professional services cannot be deflected by him having acted as an employee of director of a limited liability company.

I'm no company lawyer but this is how I'd see it, having been taught some employment law.

This would probably only apply if criminal charges were pursued against a particular architect who willfully ignored both his/her company's own internal procedures (e.g. ignoring corrective instructions by a senior colleague double-checking his work) and standard design/specification practices and when the said design/spec work of the architect resulted in work so dangerous (or possibly, fraudelent) that criminal charges followed.
The civil charges that may accompany such a situation would have to be met by the employer, as all employers must indemnify their employees for civil damages iincurred whilst acting, in name at least, in the company service.

For purely civil claims arising from bad (i.e. against brief, dangerous, exorbitant, etc - not in bad taste) work, the company as employer must indemnify all of its employees.
So any claims would be against the ltd co and/or their insurers, not against the individual architect.
The most sanction the company could apply to that employee architect would be to fire him/her and provide a negative reference, if ever asked.
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Re: What protection does a limited company afford to architects?

Postby onq » Mon May 17, 2010 1:24 am

Well, that's more or less my understanding of it too.

The master is liable for the torts of his servant, but cannot stand in his place for criminal acts.

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Re: What protection does a limited company afford to architects?

Postby Inprintimaging » Mon May 17, 2010 3:05 pm

About 8 years ago there was a tidal wave of sole traders who went limited owing to a government tax break (which they had to close a couple of years later because it cost too much). Whether it is worthwhile from a tax view now depends on your level of profits, but bear in mind limited companies cost more in terms of accounts fees every year, so for a small business it may not always be worth while as this often offsets the tax saving.

It's worth pointing out as well - Ltd companies often get quoted as "limiting your personal liability to the amount of share capital you put in" - which sounds like it should let you off the hook if you go bust, but be careful. In the case of a lot of small limiteds I've heard of banks wanting loans to such companies to be personally guaranteed by the directors (against their own homes for example). This pretty much negates the benefit of being "limited" if you were looking to protect your own home.




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Re: What protection does a limited company afford to architects?

Postby teak » Mon May 17, 2010 4:20 pm

Sure, the limitation of liability advantage depends on the extent to which the directors own assets are connected to business loans guaranteed by them.
But at least if you do get the house deeds off the bank manager after paying off the start-up loan, then you are free. With the sole trader situation the personal liability is always there.

But aside from liability, the corporate rate (12.5%) of tax on profits is much easier than income tax rates (20%, 41%) and I reckon the civil service car expense (about €12,500 for 20,000 miles company driving of a 1.4L car p.a.) is better than wear & tear allowance of 12.5% of purchase cost (say about €2,500 p.a. for a 1.4L costing €20,000 new). Additional insurance required for company work use of a privately owned car is an allowable expense.
A good share of non-chargeable benefits-in-kind also can be had by employee/directors of a company.

Going back to the professional liability of employer architects on behalf of their employee architects.
It's clear that a reckless or headstrong behaviour on the part of an employee architect could destroy the reputation of his employer's practice and hence its commercial viability, even if no criminal charges arose from it.
I wonder if the architects' and arch techs' professional bodies have absorbed this danger insofar as such action could be used as grounds for disbarment ?
Otherwise the devil could be sacked from one practice and set up for himself in another town . . .
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Re: What protection does a limited company afford to architects?

Postby KerryBog2 » Mon May 24, 2010 3:44 pm

A Limited Company limits the liability of the directors to exclude their personal assets. It has separate legal personality - it is a separate and distinct legal person. The directors are responsible for ensuring compliance with the Companies Acts, the main requirements being:
• Maintaining statutory registers;
• Convening Annual General Meetings;
• Maintaining the minute book;
• Filing an Annual Return each year-end at the Companies Record Office;
• Maintaining proper books of accounts

In the event that there has been careless or reckless trading, directors could be liable for losses. Liquidators are asked by the courts to look for this. The ODCE supposedly has stepped up policing, but the lack of any visable action on certain property and bank personnel makes me - and others - query this. Tax rates do bear consideration, but remember that any funds taken out of the company attract income tax.

A sole trader usually has a trading name - E.g. Bloggs Architects and typically is styled as John Bloggs (t/a) “Bloggs Architects”
Usually trading style is registered as a Business Name in Companies Record Office to protect image/trademark.
Sole trader has unlimited liability on debts of the business – i.e. he/she has liability for debts, so is putting all personal assets “on the line.”
A Sole trader does not need to make any returns to CRO, whereas a Ltd Co does.

The comment by the Merseyside poster is not of particular interest as the requirements of small companies in the UK and Ireland differ significantly depending on turnover, e.g filing requirements, auditors certs, etc.

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