Which is better
- Thread starter Tom-D
- Start date
poadeleted20
Deleted
- Joined
- Apr 8, 2005
- Messages
- 31,250
First, there's not really a business form called a "co-ownership" even though the FAA allows that to be listed on the registration. In general, co-owners are effectively "partners" in either a general or limited partnership. "Co-ownership" as most of us think about it is actually a general partnership, and general partners personally responsible for all debts of the owned entity, while owners of an LLC have only their investment in the LLC at risk for debts of the owned entity. In addition, any general partner can commit the entire partnership to agreements.
Of course, the LLC won't protect the owners of the LLC from liability for their own actions (i.e., flying the plane, making maintenance decisions, etc), but it does mean that if one of the other LLC owners prangs the plane and someone is injured, and the first LLC owner is not found to have negligently allowed/caused the accident to happen, the first LLC owner's risk is limited to what s/he has in the LLC, and other personal assets are not at risk. In addition, unless the LLC conducts its business like a business (documents signed by company officers, no mingling of personal and company funds, decisions made as a company and documented, etc), the LLC's protection can be pierced and the personal assets of all owners attacked. However, if the owners of the LLC play by the rules, there are substantial protections provided by the LLC form of business entity.
So, what do you think is the best choice to limit one's legal liability?
Of course, the LLC won't protect the owners of the LLC from liability for their own actions (i.e., flying the plane, making maintenance decisions, etc), but it does mean that if one of the other LLC owners prangs the plane and someone is injured, and the first LLC owner is not found to have negligently allowed/caused the accident to happen, the first LLC owner's risk is limited to what s/he has in the LLC, and other personal assets are not at risk. In addition, unless the LLC conducts its business like a business (documents signed by company officers, no mingling of personal and company funds, decisions made as a company and documented, etc), the LLC's protection can be pierced and the personal assets of all owners attacked. However, if the owners of the LLC play by the rules, there are substantial protections provided by the LLC form of business entity.
So, what do you think is the best choice to limit one's legal liability?
SCCutler
Touchdown! Greaser!
- Joined
- Feb 27, 2005
- Messages
- 17,409
- Display Name
- Spike Cutler
- Home Airfield
- T82
Excellent analysis, Ron.
---
Tom: Need a little bit more information about the use to which the asset (airplane, I'd presume) will be put.
---
Tom: Need a little bit more information about the use to which the asset (airplane, I'd presume) will be put.
poadeleted20
Deleted
- Joined
- Apr 8, 2005
- Messages
- 31,250
Tom-D
Taxi to Parking
- Joined
- Feb 23, 2005
- Messages
- 34,740
- Display Name
- Tom-D
No, just two guys who would like to share an airplane.
And not being a Lawyer, I thought I'd ask.
how would you handle funds ?
alaskaflyer
Final Approach
- Joined
- Feb 18, 2006
- Messages
- 7,544
- Location
- Smith Valley, Nevada
- Display Name
- Alaskaflyer
- Home Airfield
- KMEV
poadeleted20
Deleted
- Joined
- Apr 8, 2005
- Messages
- 31,250
Unless they're married (don't know either the guys or the law in Washington state), an LLC would be a much better idea than a partnership.
I doubt many lawyers would tell you different than I did.
With care and documentation, entirely separately from their own personal funds, just like it says in Chapter 5 of J. Scott Hamilton's "Practical Aviation Law." I'd suggest they can start their ownership sharing by each chipping in a $20 bill to get a copy of that book.
poadeleted20
Deleted
- Joined
- Apr 8, 2005
- Messages
- 31,250
Depends on Alaskan law and how you registered it, but probably not. Ask an Alaskan lawyer to get a reliable answer. And that plays out differently in terms of the FAA (Federal law) versus debts and liability for your partner's negligence (state law).
SCCutler
Touchdown! Greaser!
- Joined
- Feb 27, 2005
- Messages
- 17,409
- Display Name
- Spike Cutler
- Home Airfield
- T82
Tom:
Lotta question there.
First off, handling funds: so much depends upon the nature of the people involved. In my experience, the best way is to have a setup where both parties required to sign checks, and a funded reserve account.
LLC, C-Corp, S-Corp, Limited Partnership - all are useful for risk-containment, but (like Ron mentioned above) nothing will protect you from liability for your own actions. The corporate form may be a barrier to liability if the "other guy" does something stupid. Corporate formalities must be maintained.
In some jurisdictions, the ownership of the aircraft in corporate name creates a presumption of business use, and resultant increased tax liability. Need to watch out for that, ask a professional in the applicable jurisdiction. Of course, there is an expense associated with establishing and maintaining the corporate entity, which may be substantial and may be trivial. Again, ask a pro.
Aircraft in corporate name can make selling a share easier - just convey shares instead of having to diddle around with re-registration.
Most important protection, of course, is having a partner with whom you are compatible, and who is trustworthy. All the contract in the world will not make a thief treat you fairly, and the complete and utter absence of a written compact will not stop an honest man from doing the right thing.
Lotta question there.
First off, handling funds: so much depends upon the nature of the people involved. In my experience, the best way is to have a setup where both parties required to sign checks, and a funded reserve account.
LLC, C-Corp, S-Corp, Limited Partnership - all are useful for risk-containment, but (like Ron mentioned above) nothing will protect you from liability for your own actions. The corporate form may be a barrier to liability if the "other guy" does something stupid. Corporate formalities must be maintained.
In some jurisdictions, the ownership of the aircraft in corporate name creates a presumption of business use, and resultant increased tax liability. Need to watch out for that, ask a professional in the applicable jurisdiction. Of course, there is an expense associated with establishing and maintaining the corporate entity, which may be substantial and may be trivial. Again, ask a pro.
Aircraft in corporate name can make selling a share easier - just convey shares instead of having to diddle around with re-registration.
Most important protection, of course, is having a partner with whom you are compatible, and who is trustworthy. All the contract in the world will not make a thief treat you fairly, and the complete and utter absence of a written compact will not stop an honest man from doing the right thing.