Aircraft ownership in the United States can take many different forms depending upon the type of aircraft and the purposes of use intended for the airplane. The way you will want to own a personal aircraft may differ greatly from the way a corporation will want to own an aircraft. The primary reason for determining the best way for anyone to own an aircraft has to do with liability. Whenever you own anything that can cause harm to someone else or their property you have a liability exposure. Whether it is your car or airplane, if someone is injured or someone’s property is damaged by the operation of that car or airplane you are responsible. This is true even if you are not the operator!
Legal Forms Of Ownership
There are 4 basic forms of ownership of real property like an airplane:
- In your personal name;
- In a partnership;
- In a limited liability corporation (LLC);
- In a corporation (C Corporation).
When you purchase an aircraft there a number of questions you need to ask yourself in order to determine how you will want to register the ownership of your aircraft.
- The type of aircraft
- The intended use of the aircraft?
- Who will pilot the aircraft?
- Where will the aircraft be flown?
- Will others use the aircraft?
Once you have answered these questions you can then move on to deciding what form of ownership works best for your aircraft.
Owning A Personal Aircraft In Your Personal Name
The simplest form of ownership is to simply register the aircraft in your own name; however, this may be the worst possible way for you to own an airplane. Because of the liability issue, owning an aircraft in your personal name exposes you and your entire estate to unlimited liability. Purchasing insurance on the aircraft can provide some protection against the liability arising from the ownership or operation of your aircraft; however, there are a number of things which can impact whether or not the insurance policy you purchase provides the protection you need.
Owning An Aircraft In A Partnership
A partnership can be constructed in several different ways. For example, most of you probably think of a partnership being equal ownership in the aircraft, but this is not necessarily the case. For example, when I flew for a small corporation they formed a partnership in which one company owned 75% of the aircraft and another company owned 25% of the aircraft. In this situation the smallest share owner flew the aircraft himself while the larger share owner employed a full time pilot. This presented some interesting insurance issues, which I will address in my next post next Tuesday. Another form of partnership is a flying club where more than 2 people own an aircraft; however, most flying clubs are organized as a corporation and the members are simply shareholders in the corporation.
Owning An Aircraft In A Limited Liability Corporation
LLCs were formed specifically to allow an individual, or group of individuals, own property and limit the members personal liability exposure. This form of ownership has grown in popularity because of the simplified corporate structure and filing requirements. Limited Liability Corporations are available in all 50 states, are very simple to set up and manage, and provide an easy way for individuals or groups of individuals to own an aircraft.
Owning An Aircraft In A C Corporation
Depending upon the type of aircraft and its uses a C Corporation may be the best choice of aircraft ownership. It provides the maximum protection from liability for the shareholders, but is more difficult to manage and to keep all of the filing requirements met. This form of ownership is typically seen where aircraft are owned and shares in the aircraft sold to investors and individuals who want the convenience of a personal aircraft without the hassle of managing the operation and maintenance of the aircraft.
Ownership By Type Of Aircraft
[caption id="attachment_9949" align="alignleft" width="250" caption="Flacon 7X"]
[/caption] If the aircraft is a turbine powered aircraft flown by professional pilots and used in business, a C Corporation may well be the best choice for ownership. An LLC can also work, but may not provide as much protection as the owner(s) of the aircraft desire. On the other hand, a light single or multi-engine airplane can probably be best owned in an LLC, whether for individual owners, partners or a flying club.
Ownership By The Intended Use Of The Aircraft
For simple private, business or pleasure use an LLC makes the most sense for aircraft ownership. If the aircraft is going to be used for commercial operations like freight and passenger charter, then a C Corporation will probably be the preferred form of aircraft ownership. For corporate owned and operated aircraft the airplane can either be owned in the corporation itself, or another corporation formed solely for the purposes of aircraft ownership. Again, several insurance issues arrive based upon the intended use of the aircraft.
Ownership By The Intended Piloting Of The Aircraft
When an aircraft is owned and a pilot is hired to fly the aircraft, the form of ownership should always be some form of corporation, whether a C Corporation or an LLC. Hiring a pilot creates an employee employer relationship between the aircraft owner and the pilot. In this situation state laws will require the company to provide Worker’s Compensation insurance coverage for the pilot which protects the company from liability in a case where the pilot is injured or dies while operating the aircraft.
If the aircraft is to be flown (piloted) by the owner(s) of the airplane, then the insurance issue is much simpler and does not require Worker’s Compensation insurance Coverage.
Ownership By The Countries The Aircraft Will Be Flown In
If the aircraft is to operated outside of the United States or Canada, then special rules will apply to ownership of the aircraft. It is incumbent upon the aircraft owner to be knowledgeable about and comply with any laws a foreign country may have regarding operation of aircraft within their country. There may be strict laws regarding operating an aircraft in the skies of a foreign country, and these laws may require a certain form of aircraft ownership before allowing the aircraft to operate in their airspace.
Ownership Of An Aircraft With Multiple Owners
Here again a corporation will be the preferred way to own the aircraft. Where there are multiple owners the ownership may take the form of shares of stock, a percentage ownership of the aircraft or the purchase of a block of time of the aircraft. Whichever form the ownership takes, it is very important to make sure that the insurance coverage is properly set up to accomplish the intended goals of all owners. You can get some additional advice in Aircraft Ownership : A Legal and Tax Guide.
Until next time keep your wings straight and level Hersch! JetAviator7
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