Need LLC second opinion

kath

kath

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Katherine
Hi, all,

My husband and I have been discussing the possibility of my buying half his C-150. (So it would be officially "our" plane! Wow!) We are also talking about forming an LLC to own the plane. It's a little complicated, but after talking with him at length about it I figure I could use a second opinion, or just any helpful thoughts.

He has a small business (a photography LLC). It's actually the photography LLC which currently owns the plane, and the plane gets used for business (aerial photography). The proposal is: form a new aviation LLC. Katherine and the photography LLC would jointly own the aviation LLC. The photography LLC could use the plane for business whenever it liked, and Katherine could use the plane for training students now and then (assuming I ever get off my duff and get that CFI someday).

Alternatives being considered include: "plain" joint ownership (no LLC), or maybe I just buy the plane outright (no LLC). But forming the LLC makes sense because the plane will see some business use (definately photography, maybe someday students or even rental to students). Or does it matter at all?

He has experience with LLC's, and I have none. Just looking to hear your thoughts.

--Kath
 
If it's you flying or him flying, this is needless complexity. But if someone else will fly it, then you could use the liability shield. In the context of "maybe someday" students would fly it, I would avoid the expense and hassle of forming an LLC. Also, if you are forming a new LLC and transferring the airplane to it, you are creating a taxable event from a sales/use tax perspective.
 
I would not hesitate to create an LLC to own the aircraft. It does create a nice buffer between any possible claims against the aircraft and your personal belongings and income.
Definitely discuss this with a lawyer and an accountant, but I bet they encourage you to create the LLC (over and above what ever fees they may tru to sting you for).

The "expense and hassle" Kent refers to is actually pretty minimal. I set up the LLC for my aircraft by myself, with the help of a LLC creation program from nolo.com. (LLC Maker)
I also hard copied a version of an operating agreement that AOPA makes available as a model. After I was done (about 3 days), I had a lawyer buddy of mine read it and he asked if I wanted a job!

The cost in Colorado of creating an LLC was was pretty minimal as well. What it is in other states I can't say.

Good luck!
 
colomtnflyer said:
I would not hesitate to create an LLC to own the aircraft. It does create a nice buffer between any possible claims against the aircraft and your personal belongings and income.
Definitely discuss this with a lawyer and an accountant, but I bet they encourage you to create the LLC (over and above what ever fees they may tru to sting you for).
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Keep in mind you need to operate like an LLC. IOW the accounting, member meetings and reports need to be complete. If you slack off with LLC practices and something happens which causes the LLC to be liable a good attorney will most likely be able to pierce through the LLC and hold you accountable personally. Thus the LLC being useless.
 
Based on what my Texas lawyer has told me your LLC will have little or no ability to shield you from liability should you or your husband be sued for something that happened while either of you were flying. Texas is a community property state, your state may well be entirely different.

I'm an Enrolled Agent so I can say for sure that you need professional advice in understanding the tax implications of any new LLC. LLC taxation isn't complicated as long as you make the correct (for you) election when you start. If you start it wrong then it will be expensive and vexing to fix.
 
It matters. Setting up LLCs is the simple part. I can't give you legal advice because I am not licensed in Alaska, but before you start setting up another entity to own the plane, especially if that entity is an active going concern (as your husband's business is), and especially if that business provides flight instruction in that plane, you ought to consult an attorney. There are ways to mitigate sales/use tax if that is a concern but it depends on the specifics of your situation/state law, etc. Even if you don't set up an LLC but you flight instruct as a partner in the plane, you (and husband/photography LLC) should get an attorney's opinion. There are potential liability and tax issues here (not to mention FAA). :hairraise:

I'm sure the other attorneys on this board will chime in, too.

A lawyer should be able to lay out the issues for you with different options in an initial consultation. If you have a lawyer friend up there, I'd run this by them.

I know, I know. I hate telling people to see lawyers but on the flip side, I get to see the problems when they don't. Aargh!

Anyway, good luck, enjoy your plane, and know that I am insanely jealous that you are in Alaska! I can't wait to go back again sometime! :yes:
 
We do have a good lawyer up here, who has done LLC-setups for Paul before.
Alaska has no sales tax. What other tax related issues should I ask our lawyer about? (What is a "use tax" and does Alaska have one?)

I understand that the LLC won't protect me much from being sued if I crash into someone's house. But what if the LLC rents the plane to a student and the student crashes into someone's house? Is that the sort of thing that the LLC would help protect from?

Thanks,
--Kath
 
kath said:
We do have a good lawyer up here, who has done LLC-setups for Paul before.
Alaska has no sales tax. What other tax related issues should I ask our lawyer about? (What is a "use tax" and does Alaska have one?)
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A use tax is another name for a sales tax when the state can't collect the sales tax. In other states, it typically operates this way: You buy an airplane and register in state A, paying 4% sales tax on the transaction. Then you move to state B with 7% sales tax. State B can't tax you on the sale, but it taxes you on the use of the asset to the extent that you have not yet paid tax. So state B would assess you 3%.
kath said:
I understand that the LLC won't protect me much from being sued if I crash into someone's house. But what if the LLC rents the plane to a student and the student crashes into someone's house? Is that the sort of thing that the LLC would help protect from?
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Maybe. As mentioned you have to operate the LLC in a businesslike manner. And that typically does incur some costs in terms of preparer fees for federal tax returns, business checking acct, that kind of thing. However, if you are renting the airplane to the pilot, you are the operator and you would likely be named in any legal action anyway. If you have a leaseback situation where you are passive -- ie not managing the asset -- then you have more protection.
 
kath said:
...

I understand that the LLC won't protect me much from being sued if I crash into someone's house. But what if the LLC rents the plane to a student and the student crashes into someone's house? Is that the sort of thing that the LLC would help protect from?

Thanks,
--Kath
Click to expand...

I wish I could give you some advice on this one, but I don't think I'm qualified. While I understand the rules for them in MD and CO, each state has their own little peculiarities when it comes to LLC's and liability shields. So I might tell you something completely wrong were I to get into details. I will say, however, I think it would be tough - it sounds like you're going to be running an outfit where you, personally, will have some responsibility, and along with personal responsibility comes personal liability.

As you're in Alaska, I highly suspect that this is a common feature up there. I would *highly* recommend that you sign up for the AOPA legal services plan - it's something like $40, and they have some really good lawyers who can tell you what you'd pay thousands for otherwise.

I'm sorry I can't help further - but corporate law is an area where if the i's and t's aren't crossed every single time and in exactly the correct manner, it's all for naught.

Good luck!
 
colomtnflyer said:
... It does create a nice buffer between any possible claims against the aircraft and your personal belongings and income.
Definitely discuss this with a lawyer and an accountant, !
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The first part may not be accurate. The second sentence is good advice. While not commenting on Alaska law Generally an LLC or Corp will not shield you from your own negligence, but it often does from someeone elses.

Obi has also given you some good advice. You really need to speak with your Attorny up there Katherine. The fact that the principles in both intened uses are married may have an effect on the liability protection that you seek.

What you really need to do is speak with your attorney and tell him or her what you intend to do with the plane. Then ask the attorney how you can get the best liability protection and tax benefit. Ask him or her what kind of entity should own the plane. The laws in each state differ so something I did in Pennsylvania or Ken does in Florida may not serve you in Alaska. Best of luck.
 
From a liability protection standpoint, it seems to me that this is not significantly different than any other aircraft partnership LLC. What would make the most sense based on general LLC principles would be what Kath originally suggested -- to form an aviation LLC to own the plane, and let Kath and the photography company rent the plane from the aviation LLC. I believe that would maximize the liability protection afforded each party from the negligence of the other (e.g., protect Kath if the aerial photographer crashes the plane, and protect the photography operation if one of Kath's students crashes it). Obviously this needs to be run past a lawyer who knows Alaska law, but am I on the right track?
 
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I'm not sure what your scenario would accomplish, especially since you are married (when did that happen anyway?). IIRC Alaska is community property. It would probably be simplest if you form an aviation LLC that will rent to the photo LLC, Kathrine CFI, and whatever students or other people who want to rent it.
 
Henning said:
(when did that happen anyway?).
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Last March (and then again, big party for family, in August).

Alaska is a weird state w.r.t. community property. It is a community property state if the couple chooses it to be. We're trying to keep everything as separate (or, as in the case of the airplane, spelled out clearly in writing) as possible.

--Kath
 
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