Setting up a flight training business: LLC or INC?

Discussion in 'Flight Following' started by ArnoldPalmer, Sep 6, 2019.

  1. ArnoldPalmer

    ArnoldPalmer Pre-takeoff checklist

    Joined:
    Dec 3, 2015
    Messages:
    115
    Display Name:

    Display name:
    ArnoldPalmer
    Thinking a bit ahead, as I look to wrap up the Commercial/CFI ratings within the next six months or so. An airline job is certainly out of the question.

    Looking to freelance as an instructor and possibly buy a bird down the road to do some instruction and scenic flights. Of course I am unsure where to begin, but I am sure someone else here has been down this road.

    Do I setup the business as a LLC or do I go the route of an Inc.? What are the pros and cons of each?

    Currently in Minnesota - but a move to a different state is not completely out of the question. How would that impact the setup?

    Bird in question might be a 152/172 or similar.

    Thanks!
     
  2. WannFly

    WannFly En-Route

    Joined:
    Nov 28, 2016
    Messages:
    4,458
    Location:
    KFAR
    Display Name:

    Display name:
    Priyo
    you are DEAD to meeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
     
    N1120A and ArnoldPalmer like this.
  3. Juliet Hotel

    Juliet Hotel Cleared for Takeoff PoA Supporter

    Joined:
    Jul 21, 2018
    Messages:
    1,442
    Display Name:

    Display name:
    Juliet Hotel
    Pick the one that gives you a better chance of keeping your house when bankruptcy time rolls around.
     
    Half Fast likes this.
  4. OkieAviator

    OkieAviator Pattern Altitude

    Joined:
    Aug 17, 2014
    Messages:
    1,613
    Display Name:

    Display name:
    OkieAviator
  5. N1120A

    N1120A Line Up and Wait

    Joined:
    Apr 24, 2018
    Messages:
    710
    Location:
    AG5B MYF
    Display Name:

    Display name:
    N1120A
    LLC vs. Inc. is all about what tax situation you want to be in. From an asset protection standpoint, they do (and don't do, if you do things wrong) the same thing.

    (this is not legal advice)
     
    ArnoldPalmer likes this.
  6. Bell206

    Bell206 Pattern Altitude

    Joined:
    Oct 6, 2017
    Messages:
    1,704
    Display Name:

    Display name:
    Bell206
    In general, which direction to take is subjective to your specific and personal requirements. The place to start is with a local accountant and attorney. Each type entity has different tax and liability issues among other requirements. And since most company registrations are done at the state level, it's important to determine where you want to offer your services. I went the LLC path for mx services as it gave me the best tax flexibility for my situation.
     
    murphey and ArnoldPalmer like this.
  7. ArnoldPalmer

    ArnoldPalmer Pre-takeoff checklist

    Joined:
    Dec 3, 2015
    Messages:
    115
    Display Name:

    Display name:
    ArnoldPalmer
    Thanks.

    What if I decide to take on a business partner down the road?
     
  8. OkieAviator

    OkieAviator Pattern Altitude

    Joined:
    Aug 17, 2014
    Messages:
    1,613
    Display Name:

    Display name:
    OkieAviator
    You sell him shares.
     
    ArnoldPalmer likes this.
  9. ChemGuy

    ChemGuy Cleared for Takeoff

    Joined:
    Jun 27, 2013
    Messages:
    1,121
    Location:
    Dowagiac, MI
    Display Name:

    Display name:
    ChemGuy
    Flight training in MN....I would move south to be able to do it more than 6-8 months of the year. Unless this is more of a part time gig.
    Pick a state and consult accountant and attorney for how to set things up. Realize if someone crashes/dies you will be sued no matter the legal entity. If you have spouse i would put everything in her name only. No assets, nothing to collect.

    Couple years ago a company started up flight school and renting. a year or 2 in a student leaves to do air work ith 1/2 or less tanks, then several TnG's. On last climb out engine quits due to no gas....company didnt last long after that...shame to I just got checked out on a coupe of their AC.
     
  10. kath

    kath Line Up and Wait

    Joined:
    Feb 27, 2005
    Messages:
    893
    Location:
    Anchorage, AK
    Display Name:

    Display name:
    Katherine
    'Scuze me?
    In my universe, spouses can have assets.

    When I did some flight training last year, the family plane was already in an LLC so we left it there. The student rented from the LLC, and the LLC paid for things like the outrageously expensive insurance that we had to buy. When tax time comes around, the earnings of the LLC are just lumped in together with our individual earnings pretty much without distinction, at least this is my primitive understanding. I can't really speak to the pros or cons or legalities of any of these structures. I can tell you that because of the insurance, we did not break even. We only did it because I love flight instruction.
     
  11. EdFred

    EdFred Touchdown! Greaser! PoA Supporter

    Joined:
    Feb 25, 2005
    Messages:
    23,469
    Location:
    Michigan
    Display Name:

    Display name:
    Ed Frederick
    Maybe that should be "spouse." Like a long term gf/bf who you trust, and live in a state where common law doesn't apply?
     
  12. James331

    James331 Touchdown! Greaser!

    Joined:
    Apr 18, 2014
    Messages:
    18,963
    Display Name:

    Display name:
    James331
    Does not matter aviation wise.

    You should ask your CPA which works better for taxes.
     
  13. ChemGuy

    ChemGuy Cleared for Takeoff

    Joined:
    Jun 27, 2013
    Messages:
    1,121
    Location:
    Dowagiac, MI
    Display Name:

    Display name:
    ChemGuy
    Where did I say they couldnt?

    In a high risk high exposure business like flight instruction, especially if you provide the plane, if a bad accident happens the owner, instructor, etc WILL BE SUED. Regardless of the LLC, INC, etc.

    So if you are a person/couple with assets and you want to start a flight business it would be a good idea to shield those assets. one common way is the Husband (or wife if she is the instructor) doesnt have his (her) name on anything of value...houses, cars, accounts etc. Or depending on state maybe put that in a trust. That way when some idiot crashes and kills himself you dont loose all your assests.

    This is common in some industries...Ive had the fun of chasing down contractors that owed us money and only owned a truck and trailer.
     
  14. Clip4

    Clip4 En-Route

    Joined:
    Jun 27, 2013
    Messages:
    4,489
    Location:
    A Rubber Room
    Display Name:

    Display name:
    Cli4ord
    For tax purposes, an S-Corp or LLC. The are both pass through entities. Unless you are going to have more than 499 share holders, you do not want a corporation.
     
    mwagg737 likes this.
  15. EdFred

    EdFred Touchdown! Greaser! PoA Supporter

    Joined:
    Feb 25, 2005
    Messages:
    23,469
    Location:
    Michigan
    Display Name:

    Display name:
    Ed Frederick
    But some states that wont protect you. Once married everything that is the spouses is also yours and can be lost in a lawsuit.
     
  16. jonvcaples

    jonvcaples Ejection Handle Pulled

    Joined:
    Aug 28, 2019
    Messages:
    166
    Location:
    Colorado, USA
    Display Name:

    Display name:
    Sasquatch
    Spend the money to get advice from pros! Go to an accountant and a lawyer licensed in your state because every state does their own thing when it comes to liability etc. The cheap on line one size fits some solution is a good recipe for loosing every thing you own.
     
  17. mwagg737

    mwagg737 Pre-takeoff checklist

    Joined:
    Aug 13, 2016
    Messages:
    192
    Display Name:

    Display name:
    Mooney man
    Something to consider. You might put your assets into an irrevocable trust. It's kind of like a corporation only in the fact that it is it's own entity.

    It is worth every penny you will pay a good attorney to structure your business correctly. I cannot emphasize this enough!



    Sent from my Pixel 2 XL using Tapatalk
     
  18. WannFly

    WannFly En-Route

    Joined:
    Nov 28, 2016
    Messages:
    4,458
    Location:
    KFAR
    Display Name:

    Display name:
    Priyo
    Um... flight training in MN and ND happen all year, more training in winter actually, contrary to popular belief.
     
    ArnoldPalmer likes this.
  19. Clip4

    Clip4 En-Route

    Joined:
    Jun 27, 2013
    Messages:
    4,489
    Location:
    A Rubber Room
    Display Name:

    Display name:
    Cli4ord
    Tell us how that works. The grantor (you) cannot be the beneficiary and have no access to the assets. I suppose one could make their wife the beneficiary, but if she divorces you, the trust is not community property.
     
    Last edited: Sep 6, 2019
  20. Bell206

    Bell206 Pattern Altitude

    Joined:
    Oct 6, 2017
    Messages:
    1,704
    Display Name:

    Display name:
    Bell206
    FWIW: Asset protection varies by state. For example, when I set up my LLCs it was recommended the "best" asset protection was to maintain a hard separation between me and my company plus sufficient insurance coverage. Another thing to consider is your state's laws concerning asset seizure for judgement. Fortunately my state protects your primary domicile and certain retirement accounts from seizure as do several others. This can be a final resort as in some instances the liability protections of a LLC or INC are not applicable especially in cases of personal negligence of the company owners.
     
    ArnoldPalmer likes this.
  21. The-Flying-Lawyer

    The-Flying-Lawyer Pre-Flight

    Joined:
    Nov 16, 2014
    Messages:
    49
    Location:
    Omaha, NE
    Display Name:

    Display name:
    TFL
    :yeahthat:

    (disclaimer below)
    If liability protection matters to you, you really do want to ask an attorney to make sure things are done correctly in your state. Make sure it will actually help you in your situation, though: LLCs and other limited liability entities are almost always much better at protecting the members of that entity from each other than they are at protecting each member from the company (or vice versa). If you're going to add partners down the line, some kind of limited liability entity is a no-brainer. If not, you may get a better return on your money with extra liability insurance rather than a lawyer and a shiny new entity.
     
  22. JD318

    JD318 Pre-Flight

    Joined:
    Oct 1, 2015
    Messages:
    67
    Location:
    Nebraska
    Display Name:

    Display name:
    JD
    An LLC is not necessarily a pass through. With an LLC, you elect how you want to be taxed. A single member LLC can be taxed as a C Corp, S Corp or Sole Proprietorship. A multi-member LLC can be taxed as a C Corp, S Corp, or Partnership.
     
  23. schmookeeg

    schmookeeg Cleared for Takeoff

    Joined:
    Nov 6, 2008
    Messages:
    1,173
    Location:
    Hipsterdelphia PDX
    Display Name:

    Display name:
    Mike Brannigan
    Have this conversation with your accountant:

    "I am starting a business and plan to generate tens of thousands of dollars in annual losses plus potentially infinite liability. Please advise me on the best corporate structure."

    We went with a C corp, which I preferred as an "arms-length" entity I could (and did ultimately) sell.