Legal Hypothetical - Opening a Gym (Not Really Going to Happen)

[Valmy]

This seems like taking the "penny wise and pound foolish" error to a ridiculous extreme

[alfred russel]

Not sure that is going to help you as an individual defendant.

Obviously I would be bankrupted.

And so your upside of not getting insurance is?

Well first, they would have to pierce the corporate veil or sue me directly in my capacity as a manager/owner. But the benefits would be to: 1) free the gym from one of the most significant operating expenses in the industry, and 2) free the gym from having to operate within the constraints of an insurance policy.

While no one wants to go bankrupt, that doesn't mean my assets would be wiped out: my retirement accounts would be safe, as would certain real estate. And of course assets already spent would be gone.

[alfred russel]

Under English law there's an emerging doubt over whether group companies can limit tortious liability. And I also think for health and safety specifically parent company's can be liable for negligence by subsidiaries.

Also a consumer or quasi-consumer v a corporate is likely to get more generous and creative interpretation by the courts.

But this is nowhere near an area I know anything about.

These aren't group companies. They are separate companies owned by different individuals (in this hypothetical my brother).

[mongers]

You know what?

CdM would have something to say* about this thread. 



*by which I mean some well chosen and amusing abuse.

[katmai]

Deluded madman-No
Fucking idiot-yes

[crazy canuck]

Not sure that is going to help you as an individual defendant.

Obviously I would be bankrupted.

And so your upside of not getting insurance is?

Well first, they would have to pierce the corporate veil or sue me directly in my capacity as a manager/owner. But the benefits would be to: 1) free the gym from one of the most significant operating expenses in the industry, and 2) free the gym from having to operate within the constraints of an insurance policy.

While no one wants to go bankrupt, that doesn't mean my assets would be wiped out: my retirement accounts would be safe, as would certain real estate. And of course assets already spent would be gone.

It may be obvious but I will say it anyway, you should definitely get legal advice from a good lawyer practicing in your jurisdiction.

[crazy canuck]

Deluded madman-No
Fucking idiot-yes

A little bit of knowledge can be a very dangerous thing.

[Rasputin]

You'd have risk  a,b, and c would be alter egos of each other and are in reality a single common enterprise.  I've been successful with this type of attack before. The test in Florida can be as simple as 'are you using the corporations for an improper purpose?" 

Further the scheme breaks down when you shut down company C and bring in company D to run the gym. Under the de facto merger doctrine, company D will be deemed to have assumed Company C's liabilities. Thus, at best you could run the gym right up until you have to shut down Company C for the first time.

Finally, for the scheme to have any shot, both leases will have to be at fair market value.  Its hard to imagine how the 7% sales tax on both fair market value leases (not to mentioning the added accounting and professional expenses for the scheme) will be substantially less expensive than the insurance would have been.

in short, this will not achieve your objective.

[grumbler]

Great job teasing Rasputin out of lurkerdom, AR! 

[Tamas]

You'd have risk  a,b, and c would be alter egos of each other and are in reality a single common enterprise.

That's alright he is pretty good at managing alteregos.

[Rasputin]

Great job teasing Rasputin out of lurkerdom, AR! 

I haven't been not lurking; I've just had a crazy busy two years that kept me away.

[alfred russel]

You'd have risk  a,b, and c would be alter egos of each other and are in reality a single common enterprise.  I've been successful with this type of attack before. The test in Florida can be as simple as 'are you using the corporations for an improper purpose?" 

Further the scheme breaks down when you shut down company C and bring in company D to run the gym. Under the de facto merger doctrine, company D will be deemed to have assumed Company C's liabilities. Thus, at best you could run the gym right up until you have to shut down Company C for the first time.

Finally, for the scheme to have any shot, both leases will have to be at fair market value.  Its hard to imagine how the 7% sales tax on both fair market value leases (not to mentioning the added accounting and professional expenses for the scheme) will be substantially less expensive than the insurance would have been.

in short, this will not achieve your objective.

Sales taxes in Georgia are only on tangible personal property--that won't be a problem.

The distinct nature of the corporations should be easy to demonstrate with different ownership groups and their different purposes (A and B being in the business of leasing property, C in the business of using leased property to run and manage a gym).

Agree that this works until company C has to shut down. That is the disaster scenario, but also is unlikely. Expected costs from liability insurance are obviously going to be more than the costs of not having insurance (otherwise insurance companies wouldn't be profitable - and they also have to take into account overhead and adjusting costs, plus unlikely but highly significant events). The main benefits to the legal structure, should company C be shut down through an uninsured liability lawsuit, are that the tangible property investments are protected from creditors.

To what extent a gym operates from the location and under what structure depends a bit on facts and circumstances. But:
-creditors taking over the gym operations will be problematic because they will lack both management and long term control over the property. New management will be reluctant to come in with parties related to the old gym controlling the property and the lease expiring.
-the old gym (company C) will be thoroughly bankrupted, but the property will still be set up for a climbing gym....

[alfred russel]

Opening a climbing gym is my dream in life, but it won't happen because dreams are things that only children believe can come true. Finding out that dreams don't happen is a milestone in growing up, sort of like learning that santa claus isn't real.

[crazy canuck]

Agree that this works until company C has to shut down. That is the disaster scenario, but also is unlikely.

Well I told you to get advice from a good lawyer from the jurisdiction.

As it turns out you got some advice from an exceptional lawyer - and you disagreed with it.

[Barrister]

Opening a climbing gym is my dream in life, but it won't happen because dreams are things that only children believe can come true. Finding out that dreams don't happen is a milestone in growing up, sort of like learning that santa claus isn't real.

"Opening a climbing gym" isn't exactly a crazy dream.  It's not like my six year old saying he wants to be an astronaut and make movies when he grows up.

Rather than looking at it as a scam, why not look at it as a straight business proposition?  After all you said in your opening post:

Climbing has exploded in popularity, and gyms are getting absurdly crowded. At the same time, their insurance costs are supposedly obnoxiously high and going up (gyms are increasing prices, and attributing it to this, though I suspect it is more supply and demand).