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).
My radical solution: open a gym without insurance. How it would work: establish three companies.
Company A: Owns the land and building.
Company B: Owns the climbing equipment.
Company C: Leases the land and building from company A and climbing equipment from company B to run the climbing gym.
All the leases are not especially long term - say 1 year.
If there is a significant lawsuit, Company A should not be at fault, and Company B likely won't be (there could be an issue with the climbing equipment, but accidents are generally human error). If Company C stays thinly capitalized, it can go bankrupt without significant losses to the owners.
In the event third parties take over Company C, Company A and B can simply refuse to renew the leases and operations can resume with a new company with the previous ownership in no more than a year (if the leases were no more than a year).
My friends think that I am a deluded madman. What says languish?
Quote from: alfred russel on December 16, 2019, 02:02:18 PM
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).
My radical solution: open a gym without insurance. How it would work: establish three companies.
Company A: Owns the land and building.
Company B: Owns the climbing equipment.
Company C: Leases the land and building from company A and climbing equipment from company B to run the climbing gym.
All the leases are not especially long term - say 1 year.
If there is a significant lawsuit, Company A should not be at fault, and Company B likely won't be (there could be an issue with the climbing equipment, but accidents are generally human error). If Company C stays thinly capitalized, it can go bankrupt without significant losses to the owners.
In the event third parties take over Company C, Company A and B can simply refuse to renew the leases and operations can resume with a new company with the previous ownership in no more than a year (if the leases were no more than a year).
My friends think that I am a deluded madman. What says languish?
:hmm:
Yes, quite assholish thing to do.
Probably already exist.
1. I am not licensed to practice law in Georgia.
2. Generally though, you should google the phrase "piercing the corporate veil". It can be done, although there is much litigation on the topic. And even if you ultimately win, you have a potentially lengthy court battle to fight.
3. That's one of the advantages to having insurance. If you do get sued, it's your insurer who pays for and retains your lawyers. Insurance is just as much about protecting you from legal bills as it is from liability.
Limited liability is a mostly reliable shield against debts (contract liability) assuming properly formalities are maintained. It is not always reliable shield against tort liability however. If there is an accident then Company C may not be the only defendant - the individuals and agents responsible for the decision making or conduct that led to the accident (i.e. you) may be named as defendants as well. That's basic common law principles - but then you have to deal with state and local laws and regulations that address consumer-facing businesses generally and health and fitness facilities specifically. Even if local and state law permits operation of such a business without insurance, it may be considered a fraudulent or negligent act to fail to inform consumers of the uninsured status of the facility.
Bottom line - plan seems very dubious, I wouldn't consider without careful consultation with counsel and planning, and even then I would be skeptical.
EDIT: Re BB comment above your risk is not so much veil piercing - which is tough for a plaintiff to pull off - as the possibility that a negligent or responsible individual can be sued directly in tort.
Quote from: alfred russel on December 16, 2019, 02:02:18 PM
(there could be an issue with the climbing equipment, but accidents are generally human error).
See there is the problem. Human error => human defendant.
Good luck with your gym! :)
I'm guessing as part of the licensing process you have to show insurance.
Quote from: The Minsky Moment on December 16, 2019, 02:30:34 PM
Limited liability is a mostly reliable shield against debts (contract liability) assuming properly formalities are maintained. It is not always reliable shield against tort liability however. If there is an accident then Company C may not be the only defendant - the individuals and agents responsible for the decision making or conduct that led to the accident (i.e. you) may be named as defendants as well. That's basic common law principles - but then you have to deal with state and local laws and regulations that address consumer-facing businesses generally and health and fitness facilities specifically. Even if local and state law permits operation of such a business without insurance, it may be considered a fraudulent or negligent act to fail to inform consumers of the uninsured status of the facility.
Bottom line - plan seems very dubious, I wouldn't consider without careful consultation with counsel and planning, and even then I would be skeptical.
EDIT: Re BB comment above your risk is not so much veil piercing - which is tough for a plaintiff to pull off - as the possibility that a negligent or responsible individual can be sued directly in tort.
My uninvolved brother would need to own company b and c...I'd of course need to hit any legally required insurance needs (I don't think they exist in Georgia beyond worker's comp) and I'd add to the significant waiver that everyone has to sign before using climbing gyms that they understand the gym does not have adequate insurance - disclosing that just seems like good business anyway to discourage lawsuits. I doubt anyone undeterred by the standard liability waiver you sign in a climbing gym will suddenly be deterred by that.
Quote from: Barrister on December 16, 2019, 02:24:38 PM
1. I am not licensed to practice law in Georgia.
2. Generally though, you should google the phrase "piercing the corporate veil". It can be done, although there is much litigation on the topic. And even if you ultimately win, you have a potentially lengthy court battle to fight.
3. That's one of the advantages to having insurance. If you do get sued, it's your insurer who pays for and retains your lawyers. Insurance is just as much about protecting you from legal bills as it is from liability.
Not really the problem under the proposed scheme. His problem is going to be one of personal liability as the tortfeasor who acted negligently and so his shares in A are likely going to be attached anyway. Also B and C are likely direct defendants. There is a good business reason to be adequately insured.
Quote from: alfred russel on December 16, 2019, 03:12:18 PM
My uninvolved brother would need to own company b and c...I'd of course need to hit any legally required insurance needs (I don't think they exist in Georgia beyond worker's comp) and I'd add to the significant waiver that everyone has to sign before using climbing gyms that they understand the gym does not have adequate insurance - disclosing that just seems like good business anyway to discourage lawsuits. I doubt anyone undeterred by the standard liability waiver you sign in a climbing gym will suddenly be deterred by that.
Not sure that is going to help you as an individual defendant.
Quote from: Admiral Yi on December 16, 2019, 03:09:17 PM
I'm guessing as part of the licensing process you have to show insurance.
Google seems to say only worker's comp in Georgia (which is required with 3 or more employees).
Quote from: crazy canuck on December 16, 2019, 03:17:23 PM
Not sure that is going to help you as an individual defendant.
Obviously I would be bankrupted.
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.
Quote from: alfred russel on December 16, 2019, 03:22:44 PM
Quote from: crazy canuck on December 16, 2019, 03:17:23 PM
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?
Don't pick pennies in front of a steamroller. :hmm:
This seems like taking the "penny wise and pound foolish" error to a ridiculous extreme :hmm:
Quote from: crazy canuck on December 16, 2019, 03:28:43 PM
Quote from: alfred russel on December 16, 2019, 03:22:44 PM
Quote from: crazy canuck on December 16, 2019, 03:17:23 PM
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.
Quote from: Sheilbh on December 16, 2019, 03:23:26 PM
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).
You know what?
CdM would have something to say* about this thread. :contract:
*by which I mean some well chosen and amusing abuse.
Deluded madman-No
Fucking idiot-yes
Quote from: alfred russel on December 16, 2019, 06:59:41 PM
Quote from: crazy canuck on December 16, 2019, 03:28:43 PM
Quote from: alfred russel on December 16, 2019, 03:22:44 PM
Quote from: crazy canuck on December 16, 2019, 03:17:23 PM
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.
Quote from: katmai on December 16, 2019, 08:17:39 PM
Deluded madman-No
Fucking idiot-yes
A little bit of knowledge can be a very dangerous thing.
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.
Great job teasing Rasputin out of lurkerdom, AR! :D
Quote from: Rasputin on December 17, 2019, 05:09:46 AM
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.
Quote from: grumbler on December 17, 2019, 06:19:31 AM
Great job teasing Rasputin out of lurkerdom, AR! :D
I haven't been not lurking; I've just had a crazy busy two years that kept me away.
Quote from: Rasputin on December 17, 2019, 05:09:46 AM
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....
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.
Quote from: alfred russel on December 17, 2019, 10:48:18 AM
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.
Quote from: alfred russel on December 17, 2019, 11:04:39 AM
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:
Quote from: D4HClimbing 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).
Exactly how expensive is liability insurance on a climbing gym, anyways?
At AR,
As judgment creditor's counsel, I wouldn't try operating your gym, I'd just garnish Company C's bank accounts, garnish its customers and then institute proceedings supplementary to execution against its officers and directors and companies a and b for fraudulent transfers and piercing the corporate veil. Once I had judgments against Company a and b, I'd own the building and the gym equipment.
Your corporate scheme creates hurdles not road blocks. There is a reason why people buy liability insurance. This is that reason.
Also, here I would equitably trace all funds going from all three companies to the shareholders or any third parties. Unless they can demonstrate they are arms length non fraudulent transactions all those assets become my client's as well.
I like your idea of invoking the merger doctrine. Here we may have a easier hurdle of establishing the directing mind which could also create personal liability (including in conspiracy) for creating what might be established to be a fraudulent structure intended to deceive the patrons of the gym.
So many ways to get at this sort of attempt to avoid liability.
At cc we are on the same page. It's too clever by half and is an impediment but not an effective shield.
Quote from: Barrister on December 17, 2019, 12:23:24 PM
Quote from: alfred russel on December 17, 2019, 11:04:39 AM
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:
Quote from: D4HClimbing 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).
The requirements of insurance are obnoxious beyond the cost. Some examples:
-Looking at insurance requirements, some require helmets for indoor climbing, which is preposterous.
-Other insurance requirements require all staff to be CPR certified (along with other training), which is silly when most workers are part time minimum wage high school and college students with after school jobs.
-The gym I go to has 60 foot walls. In parts of the wall designed for solo climbers (with auto belay devices), they now limit climbing to 30 feet (no holds above that), for insurance reasons.
-The manager of the gym I go to recently told me that the way I was belaying was unacceptable. It is the recommended method by the Swiss Alpine Guiding Association, and one other European association (I can't remember if it is the French or Italian). Apparently their insurance policy wants them to monitor that everyone is belaying with a single acceptable method.
Contrast that with the largest climbing gym in Vienna that I visited...they don't test anyone's skills before they can climb, and they don't even have staff watching climbers. It is 100% climb at your own risk. Also, the floors are hard (zero padding). I asked why they don't have cushioned floors, and the staff person said, "it is better this way; in the event of a fall the screaming will stop much sooner."
Quote from: alfred russel on December 17, 2019, 03:01:07 PM
Quote from: Barrister on December 17, 2019, 12:23:24 PM
Quote from: alfred russel on December 17, 2019, 11:04:39 AM
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:
Quote from: D4HClimbing 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).
The requirements of insurance are obnoxious beyond the cost. Some examples:
-Looking at insurance requirements, some require helmets for indoor climbing, which is preposterous.
-Other insurance requirements require all staff to be CPR certified (along with other training), which is silly when most workers are part time minimum wage high school and college students with after school jobs.
-The gym I go to has 60 foot walls. In parts of the wall designed for solo climbers (with auto belay devices), they now limit climbing to 30 feet (no holds above that), for insurance reasons.
-The manager of the gym I go to recently told me that the way I was belaying was unacceptable. It is the recommended method by the Swiss Alpine Guiding Association, and one other European association (I can't remember if it is the French or Italian). Apparently their insurance policy wants them to monitor that everyone is belaying with a single acceptable method.
Contrast that with the largest climbing gym in Vienna that I visited...they don't test anyone's skills before they can climb, and they don't even have staff watching climbers. It is 100% climb at your own risk. Also, the floors are hard (zero padding). I asked why they don't have cushioned floors, and the staff person said, "it is better this way; in the event of a fall the screaming will stop much sooner."
Solution: open your gym in a country that isn't retorted.
Mind. Blown.
I was CPR trained as a teenager (so I could teach swimming at a summer camp) it's not that big a deal. As manager of your gym you would be free not to enforce a specific belaying technique.
But to the extent you avoid doing things that are accepted as common practice in climbing gyms AND eschew insurance, you would be painting a big personal liability target on your back.
Quote from: alfred russel on December 17, 2019, 11:04:39 AM
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.
Meh, it's one you could do easy enough. Just don't try to cut legal corners doing it.
My apologies on behalf of my industry, AR. Commercial liability insurance is still in the dark age, and that means that we can't price risks well. When we can't price risks well, we have to practice excessive risk aversion.
Quote from: Eddie Teach on December 18, 2019, 01:16:31 AM
Quote from: alfred russel on December 17, 2019, 11:04:39 AM
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.
Meh, it's one you could do easy enough. Just don't try to cut legal corners doing it.
I'm trying to understand what legal corners are being cut...
Lets step back and take a common scenario...
I lease the use of commercial land and building from an unrelated third party and put a climbing gym inside.
Presumably whatever company I've leased the land and building from will not be liable if I don't have adequate insurance and there is a climbing accident unrelated to any defect in the building?
Not necessarily. There is a reason leasehold agreements have indemnity and confirmation of insurance clauses.
Quote from: crazy canuck on December 18, 2019, 11:49:40 AM
Not necessarily. There is a reason leasehold agreements have indemnity and confirmation of insurance clauses.
Yeah I get that you can answer not necessarily to any question, but obviously in the scenarios being discussed the indemnification provisions would include maximum protections for the lessor with as many risks as possible transferred to the lessee.
So this is a straightforward way it would work...I'm going to exclude debt and only 1 other investor to keep things simple. The idea is the other investor (lets say my out-of-gstate father) will put up 2/3 of the money with the expectation of getting 60% of the profits (as the operator I'd get a slightly disproportionate share).
We estimate that we need $3 million to start, with the investment as follows:
Land/Building: $1.5 million
Installed Equipment: $0.4 million
Initial Business Capital: $1.1 million.
My father initially contributes $2 million and I contribute $1 million.
My father's contribution goes for the land, building and equipment, giving him 100% of company A & B for $1.9 million.
I contribute $1 million to the initial business capital, giving me 100% of company C.
In addition, my father pays $100k for an option in Company C that becomes exercisable if the company becomes profitable and has been able to pay past liabilities. The option (if exercised) would provide him with 60% of the shares in the company, though these would be nonvoting.
Fair market value of leased property is determined to be 10% - so the combined income for my father from his leased land is $190k. My salary is set to $120k (this is approximately a 60/40 split). If and when the company is able to pay this amount (including an amount in arrears), my father can exercise his option.
As a silent investor compared to the hands-on, day to day manager, I would've thought you'd be entitled to a bigger split than 40/60. Sweat equity is a real thing.
Is the idea that you are willing to expose yourself to unlimited tort liability but you want to protect Dad?
Quote from: The Minsky Moment on December 18, 2019, 03:23:19 PM
Is the idea that you are willing to expose yourself to unlimited tort liability but you want to protect Dad?
Yes.
I wish I had relatives who could afford to drop a hundred large on an option in one of my businesses. Alas, I grew up in the Hillbilly Elegy.
I would generally not conflate the activity of the company and the performance of the assets. IE--the income from the real estate ownership should usually be something like a percentage of the gross outlay and not a share of the business income. In other words, your dad would make a profit even if you don't.
That also means that he wouldn't have a claim on your windfalls if you suddenly hit a streak of eh..wall-climbing fad cash.
My wife's sister is in this business, and man it's not easy. Her ex boyfriend started a gym something like this and she put her life savings in it. Then they broke up a couple years later. He used her money to get all the gym's equipment and everything, but she doesn't want to have liability for the debts he signs up for in the future. So they split the company into two. One to own the assets and the other for him to operate under. Presumably, he can run the company into the ground, and she'll still get to keep all the tractor wheels and climbing ropes and stuff.