Bought a plane, told to form an LLC. Your input welcome.

Discussion in 'Hangar Talk' started by stevenhmiller, Sep 12, 2014.

  1. stevenhmiller

    stevenhmiller Pre-takeoff checklist

    Joined:
    Sep 11, 2014
    Messages:
    377
    Location:
    New York
    Display Name:

    Display name:
    Steve's Archer
    Thanks for all the posts. I'm going to consult an attorney on this.
     
  2. N747JB

    N747JB Final Approach

    Joined:
    Jul 10, 2011
    Messages:
    6,097
    Location:
    Atlanta
    Display Name:

    Display name:
    John
    Good idea! :D
    I would also check with the state sales tax people as well, many states have different laws and it's only YOUR state law that matters. :D
     
  3. MooneyDriver78

    MooneyDriver78 En-Route

    Joined:
    Aug 13, 2013
    Messages:
    3,380
    Display Name:

    Display name:
    Tom
    But that wasn't an individual, you were forming a partnership, so it was consider a sale and also if you handle the plane use by leasing/renting to yourselfs a use tax would apply as well. So, yes, in that situation...big time taxes...the OP is doing the smart thing and talking to a local lawyer, subtle differences can cause big $.
     
  4. SCCutler

    SCCutler Administrator Management Council Member

    Joined:
    Feb 27, 2005
    Messages:
    17,029
    Location:
    Dallas
    Display Name:

    Display name:
    Spike Cutler
    Many states will treat a transfer of an LLC as the transfer of the assets therein, and try to collect sales or use taxes.

    In addition (and this can be a biggie), many taxing jurisdictions treat the act of holding an aircraft in an LLC or other corporate entity as creating the presumption that the asset is a business asset - and thus, subject to property taxation as a productive business asset.

    Be vewy, vewy careful, here.
     
  5. poadeleted20

    poadeleted20 Deleted

    Joined:
    Apr 8, 2005
    Messages:
    31,266
    :thumbsup:
     
  6. dans2992

    dans2992 En-Route PoA Supporter

    Joined:
    Jan 7, 2013
    Messages:
    3,542
    Display Name:

    Display name:
    Dans2992

    Let us know what they tell you. Just curious.
     
  7. coloradobluesky

    coloradobluesky En-Route Gone West

    Joined:
    Mar 19, 2014
    Messages:
    3,621
    Location:
    Colorado
    Display Name:

    Display name:
    coloradobluesky
    If you've already bought the plane and its in your name, and just you are going to own it and fly it, don't bother putting it in an LLC.

    It costs money to create an LLC and it costs a little each year to keep it registered, usually.
     
  8. paflyer

    paflyer Final Approach

    Joined:
    Jul 26, 2010
    Messages:
    7,152
    Location:
    PA
    Display Name:

    Display name:
    PAFlyer
    I'm talking about state-level department of revenue. I would have done the same (mostly from a privacy standpoint) but PA will send a bill to the LLC for use tax (6%).
     
  9. asgcpa

    asgcpa En-Route

    Joined:
    Jul 19, 2012
    Messages:
    2,553
    Location:
    Illinois
    Display Name:

    Display name:
    CPA
    I would have set uP the llc before I bought it. This is beneficial in certain states for mitigating sales tax if you want partners, or sell in the future. Consult your CPA and an attorney to see if there are any benefits left for you.
     
  10. sers589

    sers589 Filing Flight Plan

    Joined:
    Nov 24, 2015
    Messages:
    1
    Display Name:

    Display name:
    Ss
    Does anyone have an aircraft llc operating agreement they are willing to share; redacted would be fine. And how are aircraft llcs typically named? Examples would be nice. Has anyone incorporated in states other than CA? Thank you.
     
  11. Kristin

    Kristin Cleared for Takeoff

    Joined:
    Dec 1, 2013
    Messages:
    1,382
    Location:
    Twin Cities
    Display Name:

    Display name:
    Kristin (The Aviatrix)
    Do you have a partner in the aircraft? If not, why an LLC?
     
  12. James331

    James331 Ejection Handle Pulled

    Joined:
    Apr 18, 2014
    Messages:
    20,310
    Display Name:

    Display name:
    James331
    Some folks form a sole member LLC to depreciate the aircraft against their income, of course the plane must work into the business somehow for this.


    It's also nice not having a name pop up if someone runs your N number.
     
  13. PPC1052

    PPC1052 En-Route

    Joined:
    Feb 2, 2012
    Messages:
    4,923
    Display Name:

    Display name:
    PPC
    Generally for income tax purposes, but income taxes are not the only kind of taxes out there. Some states will impose a sales tax on the value of the aircraft when you transfer it. So if you bought it in your own name, and then re-register it to the LLC, that might, in some states, result in a taxable event.
     
  14. PPC1052

    PPC1052 En-Route

    Joined:
    Feb 2, 2012
    Messages:
    4,923
    Display Name:

    Display name:
    PPC
    Again, federal income tax isn't the only kind of tax out there. States like to impose sales taxes on transfers.
     
  15. PPC1052

    PPC1052 En-Route

    Joined:
    Feb 2, 2012
    Messages:
    4,923
    Display Name:

    Display name:
    PPC
    Of course, if they get a judgment against you personally, they can just take your ownership interest in the various LLCs to satisfy the judgment.
     
  16. Kristin

    Kristin Cleared for Takeoff

    Joined:
    Dec 1, 2013
    Messages:
    1,382
    Location:
    Twin Cities
    Display Name:

    Display name:
    Kristin (The Aviatrix)
    I don't think you have to have it in an LLC to depreciate the aircraft as long as it figures into your business. I depreciate mine, though it is in my name. The LLC would only help me if others were flying my plane, then there might be some liability protection. As I am the only one flying her, it would do me nothing except cost me $800 in taxes. This being California and all.
     
  17. txflyer

    txflyer En-Route

    Joined:
    May 3, 2013
    Messages:
    4,509
    Location:
    Wild Blue Yonder
    Display Name:

    Display name:
    Fly it like you STOL it ♦
    I would think that just good liability insurance that specifically covers flying activities would pay out like a shot which is what you want, and an LLC will be sued and tied up in court before you lose. And you most likely will lose.
    Instead of gallons per hour, think dollars per hour to possibly two lawyers. If you lose, you generally pay the opposing attorney fee's as well.

    The corporate veil for 'liability evasion' type LLC's is apparent and easily breached by everyone and their dog in court. LLC's are meant to be business incorporations, not a car or a truck or a plane.

    #1 you do not want to be sued and go to court. Let your insurance company pay and fight if they must. In court, the jurors would see a parade of friends and see the widow of the guy you killed or maybe his kid crying and carrying on, and they will side against the 'rich pilot' that crashed and burned everyone alive every time. :(
     
  18. mandm

    mandm Pre-takeoff checklist

    Joined:
    Feb 7, 2020
    Messages:
    105
    Location:
    Chicago
    Display Name:

    Display name:
    Michael
    You can definitely check LLC annual fees per state. Some states are thousands per year (California, probably New York too), some are just $25 per year. Many states allow transferring assets from your personal name to an LLC without it raising a taxable event, but you need to check as it definitely depends on the area and the attitude of the city workers you encounter.

    Some states have more privacy on the owner of the LLC as well, so putting an airplane into an LLC could provide a great deal of privacy.

    Transferring to family seems easy enough, probably could be done with a simple one page document signed. Buying a LLC may avoid sales tax as well, but again if their is any outstanding liability on the company that would transfer over.

    I don’t think anyone here is asking how to form an LLC so you don’t have to have insurance. Insurance is there to protect you, LLCs are there to give you privacy.
     
  19. Fearless Tower

    Fearless Tower Touchdown! Greaser!

    Joined:
    Jan 1, 2010
    Messages:
    15,464
    Location:
    Norfolk, VA
    Display Name:

    Display name:
    Fearless Tower
  20. MacFly

    MacFly Line Up and Wait

    Joined:
    May 11, 2020
    Messages:
    531
    Display Name:

    Display name:
    MacFly
    My current CFI was my business's CPA and my personal accountant for 25 years. He owns three planes. When I was looking to buy a plane we talked about ownership strategies a lot....bottom line...don't bother. You can't protect your personal assets any more effectively than with a good liability policy. And by the way...your $2 million liability umbrella isn't valid for aircraft-related claims.
     
  21. Kristin

    Kristin Cleared for Takeoff

    Joined:
    Dec 1, 2013
    Messages:
    1,382
    Location:
    Twin Cities
    Display Name:

    Display name:
    Kristin (The Aviatrix)
    Actually, I have seen some people's liability umbrella that did not exclude aviation. One I believe was from Geico, though that was a couple or three years ago.
     
  22. jtheune

    jtheune En-Route

    Joined:
    Jun 12, 2008
    Messages:
    2,779
    Location:
    Severna Park, MD
    Display Name:

    Display name:
    John T
    My policy from Electric insurance would cover me except I have the plane in a LLC with 4 partners so it's excluded. If I was sole owner it would be covered
     
  23. NotarPilot

    NotarPilot Filing Flight Plan

    Joined:
    Jan 30, 2016
    Messages:
    24
    Location:
    Long Beach, CA (KLGB)
    Display Name:

    Display name:
    NotarPilot
    What about using an LLC for anonymity? I would like to register my plane under an LLC just so you don’t see my home address when you enter my N number on the FAA website. I don’t understand why aviation YouTubers don’t do this.
     
  24. SCCutler

    SCCutler Administrator Management Council Member

    Joined:
    Feb 27, 2005
    Messages:
    17,029
    Location:
    Dallas
    Display Name:

    Display name:
    Spike Cutler
    What address would you use for the LLC?
     
  25. MooneyDriver78

    MooneyDriver78 En-Route

    Joined:
    Aug 13, 2013
    Messages:
    3,380
    Display Name:

    Display name:
    Tom
    Just get a PO Box.
     
    Radar Contact likes this.
  26. NotarPilot

    NotarPilot Filing Flight Plan

    Joined:
    Jan 30, 2016
    Messages:
    24
    Location:
    Long Beach, CA (KLGB)
    Display Name:

    Display name:
    NotarPilot
    I believe some states like Wyoming and South Dakota have fairly inexpensive LLC annual costs. I think their under $100 each. Then you gotta get a mailing address there which is also affordable.

    I thought about the PO Box route but it would still have my name and it’s fairly easy to get a home address on the internet using someone’s name.
     
  27. flyingron

    flyingron Touchdown! Greaser! PoA Supporter

    Joined:
    Jul 31, 2007
    Messages:
    20,183
    Location:
    Catawba, NC
    Display Name:

    Display name:
    FlyingRon
    Sorry, but the last few posts are incorrect. A PO BOX isn't sufficient. An LLC in nearly any state (including the two mentioned) requires a designation of an actual PHYSICAL address that is accessible for service of process. While there are companies that can provide this "registered agent" service with some amount of anonymity to you a PO BOX or PMB is NOT going to meet the requirements.

    Further, while you might appease the FAA with a foreign LLC (i.e., one not in the state that the activity is taking place with), many states will insist on you also registering there and opening yourself up to taxation and filing requirements.
     
    NotarPilot likes this.
  28. UngaWunga

    UngaWunga Pattern Altitude

    Joined:
    Oct 27, 2014
    Messages:
    1,603
    Display Name:

    Display name:
    UngaWunga
    Form the LLC to register the plane. That way you can hide your home address when people look up the tail number.
     
    NotarPilot likes this.
  29. FlyingTiger

    FlyingTiger Pre-takeoff checklist

    Joined:
    Sep 9, 2014
    Messages:
    399
    Location:
    Lehman, PA
    Display Name:

    Display name:
    FlyingTiger
    Kristin, you mentioned that single member LLCs do not offer personal liability protection for plane ownership and operation. I am a non litigator that has formed many LLCs over my career, typically for real estate holdings, so you have sparked my interest. My assumption is that the plaintiff lawyers are claiming negligence on the part of the pilot individually and naming them as a co-defendant along with the LLC to get personal liability?
     
    Last edited: May 4, 2021 at 5:40 AM
  30. midlifeflyer

    midlifeflyer Touchdown! Greaser!

    Joined:
    May 25, 2006
    Messages:
    12,307
    Location:
    Chapel Hill NC
    Display Name:

    Display name:
    Mark
    In the tort arena, the human tortfeasor is always liable for his or her own actions. The LLC will provide members some tort protection for the acts of others, but not for their own. To give an example, assuming to basis to pierce the liability veil due to failure to treat as separate, if there are three Members and Member B crashes and injures someone, the LLC will have owner liability, Member B will have personal liability, but Members A and C probably will not.

    There are, of course, liability protections available in a single-member LLC, but those are primarily contractual.

    When we talk very generally in aviation groups about the lack of personal liability protection for a single-member LLC, we're talking about the liability which most concerns pilots. And we are keeping it simple. So, do you think pilots are concerned more about:
    1. Personal liability for crashing the airplane; or
    2. Personal liability for payment of an order for a case of oil placed with Aircraft Spruce in the name of the company.
    I was going to mention the huge loan for the upgraded avionics suite but, as you know, unless that company has a huge positive credit history and major assets, the lender is going to require personal guaranties from the members.

    That said, no one should create or forego creating an LLC because of things said in an online forum. There may well be reasons beyond personal liability for personal torts to create a single member LLC. That's personalized legal advice.
     
    Last edited: May 4, 2021 at 1:50 PM
    Bell206 likes this.
  31. FlyingTiger

    FlyingTiger Pre-takeoff checklist

    Joined:
    Sep 9, 2014
    Messages:
    399
    Location:
    Lehman, PA
    Display Name:

    Display name:
    FlyingTiger
    Thanks for telling me what I already know. Seriously are you even a lawyer because you are trying way too hard here. Did you miss the part where I said I have formed numerous LLCs for clients in the real estate area?? I have practiced law for over 20 years and essentially answered my own question but wanted clarification from a peer who has actual litigation experience in the matter, not another POA know-it-all that actually knows less than the person that asked the question.
     
    Last edited: May 5, 2021 at 4:52 AM
  32. midlifeflyer

    midlifeflyer Touchdown! Greaser!

    Joined:
    May 25, 2006
    Messages:
    12,307
    Location:
    Chapel Hill NC
    Display Name:

    Display name:
    Mark
    [Edit: Original comment deleted and replaced with]
    [​IMG]
     
    Last edited: May 5, 2021 at 12:32 PM
    TCABM and murphey like this.
  33. murphey

    murphey Touchdown! Greaser! PoA Supporter

    Joined:
    Aug 21, 2008
    Messages:
    10,145
    Location:
    Colorado
    Display Name:

    Display name:
    murphey
    I don't personally know Kristin (but did look up her qualifications), but I do know midlifeflyer. As well as others here on POA that are knowledgeable in this area, some have even passed the bar in this area. Legal issues in real estate are primarily local (state, county, etc) where aviation issues may additionally involve Federal complications.
     
  34. midlifeflyer

    midlifeflyer Touchdown! Greaser!

    Joined:
    May 25, 2006
    Messages:
    12,307
    Location:
    Chapel Hill NC
    Display Name:

    Display name:
    Mark
    Actually, the state rules on the liability of LLC members have very little to do with aviation law. Even drivers are liable for their own actions no matter who owns the car. But yes, you do manage to pick up a few things in 40+ years as a member of the bar as both a commercial litigator and transactional lawyer ;)

    My long answer was because non-lawyers are reading this and it is a common area of misunderstanding. It was not intended as a reflection on the state of his knowledge, although he apparently took enough offense to decline to insults.

    And I do know Kristin.
     
    Last edited: May 5, 2021 at 2:55 PM
  35. Chris715

    Chris715 Filing Flight Plan

    Joined:
    Saturday
    Messages:
    1
    Display Name:

    Display name:
    Chris715
    I live in NC and have owned three airplanes. My first plane was a C152 that I had on leaseback at a flight school. I had it in an S Corporation, but only because I was not the only one who flew it and there was some liability. Plus my lawyer wife insisted on it. Renter and Student pilots sometimes do stupid things in airplanes. My current airplanes are only flown by me, so there is no value in paying $200 per year to have an LLC or an S corporation. Plus they are both tailwheel airplanes, so my aviation insurance company (as well as me) is very particular about who flies them. One is pretty simple ('46 J3C) but still tricky for anyone without much tailwheel experience. The other is an Aviat Husky A1-B, which is not difficult to fly, but landings and takeoffs require a fair amount of practice to maintain currency, especially for night and IFR flying. My understanding is that liability is not reduced by registering it in an LLC or other form of corporation for a pilot who owns an airplane and flies it exclusively. It took me a couple of years to realize that and I re-registered it and now save $200 per year in annual corporation registration fees. Mark's description is better than mine.
     
    Last edited: May 8, 2021 at 9:26 PM
  36. flyingron

    flyingron Touchdown! Greaser! PoA Supporter

    Joined:
    Jul 31, 2007
    Messages:
    20,183
    Location:
    Catawba, NC
    Display Name:

    Display name:
    FlyingRon
    An S Corp is not a type of entity, but a tax status that can be applied to LLCs or corporation. Your plane was in a corporation.
     
  37. Groundpounder

    Groundpounder Pattern Altitude

    Joined:
    Jan 27, 2013
    Messages:
    2,152
    Location:
    New Hampshire
    Display Name:

    Display name:
    Heywood Jablowme
    My partner and I have an LLC that our airplane is owned by. I know nothing is perfect, but if either one of us runs into a kindergarten filled with babies, there might be a little bit of protection for the other member.
     
  38. EdFred

    EdFred Taxi to Parking

    Joined:
    Feb 25, 2005
    Messages:
    26,251
    Location:
    Michigan
    Display Name:

    Display name:
    Ed Frederick
    The registered agents address.
     
  39. Bell206

    Bell206 En-Route

    Joined:
    Oct 6, 2017
    Messages:
    4,138
    Display Name:

    Display name:
    Bell206
    FYI: The preferred method to maintain anonymity when registering an aircraft is through the use of an aircraft or owner trust. While the FAA has access to the identity of the trust beneficiary, all public data for that registration only lists the trustee's information. This is the same method used by foreign citizens to apply for an N registration on their aircraft.
     
  40. flyingron

    flyingron Touchdown! Greaser! PoA Supporter

    Joined:
    Jul 31, 2007
    Messages:
    20,183
    Location:
    Catawba, NC
    Display Name:

    Display name:
    FlyingRon
    A trust predominantly controlled by foreign citizens isn't eligible for registration either.