Liability transferring from sole trader to new limited company

[Terry-s]

Hi,

I am currently a sole trader looking to set up a limited company.

I have previously carried out my sole trader work on a project by project basis, signing contracts for each job with my one client.

I would like to transfer all the liability for that work over to my new LLC, should a legal matter ever come up in the future to protect myself. Is this possible?

Would I have to get them to sign new contracts and if so, what important terms would that contract need to include to have a proper transfer of liability? (For example, would saying ‘this contract supersedes any previous agreement’ suffice?)

My concern is mainly that all the work has already been done under a sole trader status. I’m sure the client won’t mind signing new contracts but not sure if that’s legally something that can be done.

Thanks in advance,

 

[Mark T Jones]

You can't transfer historic liability.

You can ask for new contracts in the Ltd name

 

[Terry-s]

Okay glad to know where I stand. Appreciate it.

 

[Newchodge]

You can't transfer historic liability.

You can ask for new contracts in the Ltd name

Agreed. The liability arose at the time that the work was done and it will stay with the sole trader. Going forwards you can get new contracts signed for completing work started as a sole trader, if the client will agree, but I don't think that would affect your personal liability for any part of the work already done.

 

[Frank the Insurance guy]

What is your business?

If you are providing professional services (engineer/consultant etc ) and previously had Professional Indemnity cover as a sole trader, you can arrange a new policy for the new company including your previous work/services as a sole trader.

This new policy will therefore respond to Professional Indemnity claims for the past work as a sole trader - ie. your liability for financial loss caused by the failures, errors etc in the professional services performed.

 

[KAC]

What is your business?

If you are providing professional services (engineer/consultant etc ) and previously had Professional Indemnity cover as a sole trader, you can arrange a new policy for the new company including your previous work/services as a sole trader.

This new policy will therefore respond to Professional Indemnity claims for the past work as a sole trader - ie. your liability for financial loss caused by the failures, errors etc in the professional services performed.

I was going to add that he/she would need to discuss with their broker as to whether they would require any run off insurance to cover claims relating to sole trader contracts

 

[Frank the Insurance guy]

I was going to add that he/she would need to discuss with their broker as to whether they would require any run off insurance to cover claims relating to sole trader contracts

Yes they would need run-off, however their new policy for the new company can include this, saving them the cost of having 2 policies running.

 

[The Byre]

I would like to transfer all the liability for that work over to my new LLC, should a legal matter ever come up in the future to protect myself. Is this possible?

No.

Were it otherwise, that would be a unilateral alteration of an existing contract by one party and it requires the agreement of all parties to the contract for any alteration to be effective.

 

[Terry-s]

What is your business?

If you are providing professional services (engineer/consultant etc ) and previously had Professional Indemnity cover as a sole trader, you can arrange a new policy for the new company including your previous work/services as a sole trader.

This new policy will therefore respond to Professional Indemnity claims for the past work as a sole trader - ie. your liability for financial loss caused by the failures, errors etc in the professional services performed.

I am a music producer. I think professional indemnity insurance sounds like a good idea, I was not aware of it as an option thank you.

After looking around, It looks like you can add a retroactive date to the policy to cover previous work, is my understanding correct? How much are these insurance plans generally?

thanks for your time

 

[Terry-s]

No.

Were it otherwise, that would be a unilateral alteration of an existing contract by one party and it requires the agreement of all parties to the contract for any alteration to be effective.

I am certain my client won’t mind signing a new agreement so that’s not the issue really. Just wondering it it’s legally something that I’m able to do.

 

[Terry-s]

Yes they would need run-off, however their new policy for the new company can include this, saving them the cost of having 2 policies running.

Is run off the same as professional indemnity insurance?

 

[The Byre]

I have never heard of someone suffering damages as a result of a music production - other than plagiarism or unlicensed sampling and those are not risks you cannot insure against as they are deliberate.

 

[Frank the Insurance guy]

I am a music producer. I think professional indemnity insurance sounds like a good idea, I was not aware of it as an option thank you.

After looking around, It looks like you can add a retroactive date to the policy to cover previous work, is my understanding correct? How much are these insurance plans generally?

thanks for your time

We would recommend Professional Indemnity Insurance, which for a creative business would include claims made against you where a third party has suffered financially as a result of a failure in your services - this would usually include claims against you relating to:

• Copyright Infringement
• Trademark Infringement
• Breach of Licence
• Plagiarism
• Piracy
• Defamation (inc Libel and Slander)
• Breach of confidentiality

Noted you do not currently have this type of cover - this is likely to make it difficult to get a quote with the retroactive date you want. In general Insurers are happy to provide a retroactive date (ie. to cover all your work form this date) from the date you first ever bought insurance. An insurer may be willing to provide the retro date you want, but is likely to charge a premium relevant to the period (eg. if you want 3 years retroactive date, they are likely to charge 3 years premium for the benefit......that's if they want to quote it at all!)

I am certain my client won’t mind signing a new agreement so that’s not the issue really. Just wondering it it’s legally something that I’m able to do.

If they agree to it, then best way to pass the liability to the new company.

Is run off the same as professional indemnity insurance?

Run-Off cover is a type of cover that will continue once your Professional Indemnity policy expires - eg. if you were to retire as a sole trader and no longer carry on business at all, you can pay for the run-off cover to deal with any claims which are made against you for the 1 to 3+ years you have paid for run-off cover for.

NOTE - Professional Indemnity insurance is on a "claims made" basis - this means that you must have insurance in place at the time a claim is made against you, not when the work was done (eg. if a policy was cancelled or lapsed, you would not have any cover for any claim whatsoever - therefore you would need to buy the run-off cover, to make sure that you still benefit from the cover after cancellation/lapse of the policy).

I have never heard of someone suffering damages as a result of a music production - other than plagiarism or unlicensed sampling and those are not risks you cannot insure against as they are deliberate.

Most risks can be insured, including plagiarism etc. Of course, this needs to be unintentional - if someone did it deliberately, then this would be excluded. Either way, the policy will usually be triggered once a claim has been made against the policyholder - at which point insurers will act under the policy, until such time as it is found to be deliberate.

 

[Terry-s]

Agreed. The liability arose at the time that the work was done and it will stay with the sole trader. Going forwards you can get new contracts signed for completing work started as a sole trader, if the client will agree, but I don't think that would affect your personal liability for any part of the work already done.

so you think even if the contract says it supersedes previous agreements for previous work the liability would still fall on the individual/sole trader?

 

[Terry-s]

We would recommend Professional Indemnity Insurance, which for a creative business would include claims made against you where a third party has suffered financially as a result of a failure in your services - this would usually include claims against you relating to:

• Copyright Infringement
• Trademark Infringement
• Breach of Licence
• Plagiarism
• Piracy
• Defamation (inc Libel and Slander)
• Breach of confidentiality

Noted you do not currently have this type of cover - this is likely to make it difficult to get a quote with the retroactive date you want. In general Insurers are happy to provide a retroactive date (ie. to cover all your work form this date) from the date you first ever bought insurance. An insurer may be willing to provide the retro date you want, but is likely to charge a premium relevant to the period (eg. if you want 3 years retroactive date, they are likely to charge 3 years premium for the benefit......that's if they want to quote it at all!)



If they agree to it, then best way to pass the liability to the new company.



Run-Off cover is a type of cover that will continue once your Professional Indemnity policy expires - eg. if you were to retire as a sole trader and no longer carry on business at all, you can pay for the run-off cover to deal with any claims which are made against you for the 1 to 3+ years you have paid for run-off cover for.

NOTE - Professional Indemnity insurance is on a "claims made" basis - this means that you must have insurance in place at the time a claim is made against you, not when the work was done (eg. if a policy was cancelled or lapsed, you would not have any cover for any claim whatsoever - therefore you would need to buy the run-off cover, to make sure that you still benefit from the cover after cancellation/lapse of the policy).



Most risks can be insured, including plagiarism etc. Of course, this needs to be unintentional - if someone did it deliberately, then this would be excluded. Either way, the policy will usually be triggered once a claim has been made against the policyholder - at which point insurers will act under the policy, until such time as it is found to be deliberate.

thanks for the information, I think copyright protection may be worth doing. However as you say to make it retroactive from when I started my sole trader business may make it too costly to be worth it.

 

[Newchodge]

so you think even if the contract says it supersedes previous agreements for previous work the liability would still fall on the individual/sole trader?

You cannot write a contract that redefines history.

 

[japancool]

I have never heard of someone suffering damages as a result of a music production - other than plagiarism or unlicensed sampling and those are not risks you cannot insure against as they are deliberate.

Someone dropping an amp on your foot?

 

[The Byre]

Most risks can be insured, including plagiarism etc. Of course, this needs to be unintentional - if someone did it deliberately, then this would be excluded.

Unlike some, I actually DO work in the music business and I have had to deal with many plagiarism and sampling cases and all the other IP infringements and although there may be insurance companies dishonest enough (i.e. all of them!) to claim that they will insure you against claims on these grounds, when push comes to shove, they ALL dig their heels in and claim that it was done intentionally.

It's a game. All the little guys like to play at being in The Big League and say that they are insured against X, Y and Z - and the insurance guys take their money! Go figure! Taking people's money is what they do!

Those of us who actually play the game know that insurance covering questions of IP is worthless. You have to have the money to cover those things yourself. Period!

 

[John Hemming]

You cannot write a contract that redefines history.

You can, however, novate a contract. It is possible to agree a transference of liability, but it has to be agreed. People could end up with a lot of faffing around on this.

 

[John Hemming]

Someone dropping an amp on your foot?

I did a gig in 2019 in a hotel where they required me to show them my musicians insurance. I am a member of the Musicians Union which comes with insurance and that was good for this sort of thing.

They also wanted to see my PAT testing results. I have my own PAT testing equipment and I therefore showed them photographs of the tester showing green.

This was the first time (and I have been gigging on and off in various guises since 1977) that I had been asked to show I was insured.

I don't think the MU insurance covers copyright, but I have not checked.

 

[Frank the Insurance guy]

Unlike some, I actually DO work in the music business and I have had to deal with many plagiarism and sampling cases and all the other IP infringements and although there may be insurance companies dishonest enough (i.e. all of them!) to claim that they will insure you against claims on these grounds, when push comes to shove, they ALL dig their heels in and claim that it was done intentionally.

It's a game. All the little guys like to play at being in The Big League and say that they are insured against X, Y and Z - and the insurance guys take their money! Go figure! Taking people's money is what they do!

Those of us who actually play the game know that insurance covering questions of IP is worthless. You have to have the money to cover those things yourself. Period!

Fair points and may well be the case in the music business.

All comes down to the contract wording (ie. the policy) - Any good broker would push back and challenge the insurer where they are putting up barriers to prevent them dealing with the claim. In respect of Professional Indemnity Insurance claims, the policy is usually triggered at the point an allegation or claim is made against the policyholder, in relation to the listed covers in the policy. You would need to check the policy to see where the burden of proof lies regarding deliberate or intentional - is it for the policyholder to prove it wasn't, or for the Insurer to prove it was?

 

[The Resolver]

I have never heard of someone suffering damages as a result of a music production .....

Try https://www.youtube.com/watch?v=g_cwuRmjhsY