Heritage Railway Legal Set-ups

Hey Folks,

I'm curious about the way heritage railways are set-up and operate. It seems that the majority have a Ltd company, and a separate charitable organisation. What's the history and logic behind this style of set-up and how does it work in practice?

Cheers!

 

I suspect this is a case of convergent evolution, where similar structures have evolved for what were at the outset different reasons.

One of the first to be set up this way was the Ffestiniog, where the Society was set up in order to gain control of an existing company which already owned a railway and had the statutory powers required to operate it. That, though, is an extremely rare case.

 

The SVR has a structure in which a PLC operates the line and a membership company supports the railway. Volunteers have to be members of the latter, but it is not a charity; there is a separate charity alongside into which large donations and bequests are channelled. The SVR's structure arose originally from the rather fishy actions of a certain local politician and the way in which he recommended funding the purchase of the Hampton Loade to Foley Park stretch of the line.

 

The Ffestiniog and Welsh Highland Railways Trust owns the shares in the FRCo. The FRS is the volunteer/supporters body. You may be thinking of the Talyllyn, where the TRPS established Talyllyn Holdings to hold the shares in the TR Co.

 

No, I was thinking of the Ffestiniog. The body that became the Society was set up to try to somehow become owners of the company, starting with the famous "Bristol meeting" in Cotham in 1951 - but they could not find a way to raise funds to pay off the overdraft, which was the only sensible route to majority control of the company given the amount of debentures held by the company's bank as security, even though the company manager was happy to put the restoration committee in touch with the largest shareholders. In 1954 Alan Pegler offered to fund the debt cancellation and purchase if the nascent society became more formally organised; but many of those involved were somewhat reluctant for one person to come in and effectively become proprietor. To show he was genuinely not interested in becoming the line's owner, Pegler agreed to set up the Trust and donate his newly-purchased majority shareholding to it.

In saying the Society was set up to gain control of the company I was simplifying somewhat, because it was not strictly speaking the Society at that point, but I didn't really feel it necessary to go into a detailed explanation.

 

Thinking of/remembering the arrangements with regards to "my" [as I'm a member] outfit the NYMR. As with pretty well all the heritage lines in the land the NYMHRT [North Yorkshire Moors Historic Railway Trust] is a charitable trust. Which like the likes of the Severn Valley has quite an high multi million pound turn over. As a Charity they aren't supposed to sully there hands with the "dirty business" of making money, hence the PLC subsidiaries that have been set up. Whilst the various Trusts ultimately own their lines. The various PLC's are responsible at the trust boards direction, for running the railway. Granted there can be as with the NYMR be two Boards with member from the Charity board sitting on the PLC board. The Charitable boards making strategic decisions as to the business direction the line takes and the PLC following to the best of its abilities those directions.

 

The L&B has a similar structure:

The project is managed by the Lynton & Barnstaple Railway Trust - a UK-registered Charity and a Company Limited by Guarantee.

Commercial activities, including the operation of the railway, are carried out by the Trust's wholly-owned trading subsidiary the Lynton & Barnstaple Railway Community Interest Company.

The 762 Club is a company limited by shares and a registered charity to build, preserve, maintain and exhibit replacement locos for the line, although i9ndependent, the 762 Club is asset-locked to the Trust.



More info HERE

 

What if an aim of said charity was to make money to fund survival of the charity?

 

Quite so if your talking thousands. But when it comes to the sort of turn over that the likes of the Moors or Severn Valley have you're talking millions. You'll find that most of the "High Street" Charities the likes of Oxfam, Cancer Research, the Red Cross etc have the shops run by a totally own PLC subsidiary as I explained with the NYMR.

This is one of those grey areas where in this case a charity morphs into a business, so in theory then falls foul of various rules governing how a business is run. As well as falling foul of a different series of tax laws.

 

Charities are able to undertake 'trading' where this fulfills their Charitable Objectives - e.g. 'to educate the public in the history and development of railways and to restore, preserve and demonstrate by use historical artifacts'. The amount in £ is irrelevant as long as the 'trading' activity is in pursuit of those aims - e.g. charging passengers to travel on the line's services. Similarly, the Charity can engage others to deliver its Charitable objectives and pay them a fair price, including a Profit element.

What a Charity is restricted as to how much it can do is buying goods for resale, whether it be straight retailing or after some form of processing (e.g. catering). It could be argued that certain ancillary activities are a traditionally part of what a Railway Company did and hence are part of educating and demonstrating e.g. station and on-train buffets, full dining experiences etc. Other activities, such as Footplate Experience, are clearly educational in themselves even if not a historic railway activity - they are a means of educating the public about railway history.

Hence, a non-Charity Company (doesn't have to be a PLC) is needed for basically shops, catering, film work (arguably not documentaries!) and other sundry income.

In fact, many lines originally set up a Company to buy the Railway, converted it to a PLC to raise Capital and have a Membership organisation (hopefully a Company limited guarantee or else members could be exposed to unlimited liabilities!) which usually volunteers must be members of (there are exceptions to this!) Sometimes, this Company becomes a Charity. Sometimes, it is the owning Company that is the Charity. Even where the 'PLC' owns the line, the Charity may have a controlling stake in the PLC (by various means).

There are probably as many detailed structures as there are railways! To me, owning Charity, with membership available to anyone to apply, with a Trading subsidiary controlled by the Charity, seems the safest and easiest route for shareholder protection and fund raising (grants, appeals, Gift aid, bequests are all easiest for Charities) but I would add that this may be due to what I am used to! Other structures exist and work but many seem to deviate from this because of where they started and the present structure is the best they could do to get near to the Charity + Trading Company model.

In ALL cases, any structure can only work with the right people involved who are willing to make it work!

Steven

 

Thanks Steven, for giving a very much greater depth answer to the legal etc ins and outs of this area.

 

Another reason for having a separate company holding the original shares or a similar arrangement is that the original act(s) of Parliament setting up a railway company, and which may still be in force as with the Talyllyn and the Festiniog Railways, don't have to be altered at enormous expense and delay. Also in the early days of taking over a former BR line, it was easier for BR to convert their line into a 'Light Railway' and then transfer the "Light Railway Order" to the new owners that the latter applying for the Light Railway Order themselves.

 

The SVR model is somewhat different. The action all happens in the plc. There is a separate members body (the so called Guarantee Company as it is limited by guarantee), and comparatively recently, a decision was made to inject some oomph into a "captive" charity, which has done very well and now chugs in a lot of cash. Incidentally, the NYMR model remains rather puzzling. There appears to have been a change in the latest reporting period whereby more (all?) of the train operating revenue now goes through the subsidiary, but somewhat counter intuitively, according to https://www.nymr.co.uk/Pages/FAQs/Category/terms-conditions when one buys a ticket, one appears to be contracting with the Trust.

 

And BR refused to deal with an unincorporated society, so the original SVR Society had to become the "Guarantee Company"

 

However you set up, you need four functions:

1. An organisation to operate the railway in a safe and financially sustainable way
2. A place to hold the assets (land, buildings, infrastructure, rolling stock)
3. A means to raise funds over and above what can be generated from operations, to pay for development (“nice to haves”) and renewal (once in a generation infrastructure and rolling stock renewal etc)
4. A means to assure overall governance so the railway as a whole has a clear strategy of what it is trying to be and how it is trying to get there. In a multi-party setup, that means ensuring that each part of the jigsaw is working to the same end.

In general, railways tend to have high asset values but somewhat marginal operating profitability. The assets have also accrued their value generally on the back of volunteer labour and altruistic donation; therefore, a degree of protection for the assets is required in the event of insolvency of the operator.

You can achieve that in different ways; some variation of a membership body to provide governance and a wholly or partly owned trading subsidiary to take on the operational risk, with an associated charity to handle fundraising (which may be combined with the membership body, or may be separate) seems to be a common setup.

What seems important to me though is that there is absolute clarity as to who does what from those four functions. I think in an example from the West currently generating bandwidth on NP, a critical flaw is that there is a lack of clarity about who handles operations (not just railway, but shop, catering, engineering etc) and there is no clear link between the membership and the overall governance function - indeed, there appears to be no governance function at all, instead each organisation sets its own, sometimes conflicting, agenda.

Tom

 

Nail on head.

At the WSR, the PLC Board is answerable only to the shareholders, and that only when there is a General Meeting. The WSRA Trustees are answerable to the Association members, but again only when there is a General Meeting, and to the Charity Commission. The other incorporated or non-incorporated bodies presumably have their own separate governance structures. So some additional mechanism on top of all those is needed to prevent them from pulling in conflicting directions. This need was eventually identified explicitly, resulting in the creation of the Partnership Development Group, and that does seem to do a good job on the issues that it addresses, but it is apparently not covering all of them or not quickly enough. Cross-membership between boards is another such mechanism, but far from helping that has itself very recently been the cause of one conflict.