Very Light Jet Magazine

No longer. On the theory that nearly anyone providing air-transportation should be subject to the world's most comprehensive safety and operating regulations, the FAA has redefined what "for hire" means. FAA regulations, including the so-called "major enterprise test," have determined that your single-asset entity is providing you air transportation for hire, even if no money changes hands and you are the only passenger or pilot. Making matters worse, these regulations are vague and almost always construed against owners.

Luckily, there are clever workarounds that often satisfy both federal government agencies, as well as your liability insurance carrier. They are, however, largely fact-driven and will be determined by the nature of your business, the intended use of your aircraft, the number of anticipated users and investors, taxation objectives, and other issues.

Traditional Considerations

As most of us know, the primary motivation to go through these hoops is to secure limited liability protection. This concept is the centerpiece of any question posed by your risk-management department that starts with the words, "what if?" What if my plane crashes? What if my passengers are injured during a turbulent flight? What if there is damage to personal property? When these things occur, you - and your core business - need to be insulated from claims.

Whatever structure your new company takes, there are traditional considerations, driven by the laws of your state or the state of incorporation. To achieve your risk-management objectives, you and your partners, if any, must adequately capitalize the company, observe corporate formalities, abstain from commingling corporate funds with personal funds or funds of other entities, file corporate tax returns, pay payroll taxes when applicable, document corporate decisions, and much more. Failure to do so can spell peril in the event of a loss or catastrophe.

Similarly, an aviation sector corporation or LLC needs special bylaws or articles of organization (mentioned below). These are to your company what the Constitution and Bill of Rights were to the nation. Your aviation attorney will help you craft these.

We often hear that the LLC is the device of choice for aircraft ownership. Does this option actually protect an owner from liabilities relating to use and operation of the VLJ?
While LLCs are very popular, they are not right for everyone. Let's briefly review the benefits and drawbacks of the limited liability company:

An LLC provides its owners with the potential protection against personal liability and an option to be taxed as a corporation or to exist as a pass-through entity. In addition, with an LLC, profits and losses can be distributed in a variety of ways; the distribution is not limited to percentage of ownership.

An LLC also offers flexible management structure. Founders are free to organize them in nearly any fashion they see fit. In some states, there is also less ongoing paperwork than a corporation; An LLC is not required to hold annual meetings or to keep formal minutes, while an S Corporation is required to do so.