Business Aircraft Co-Ownership for Small to Medium Businesses
Business aircraft ownership can deliver clear value for those business owners who can sufficiently utilize a private aircraft. The flexibility, convenience, and efficiency of a business owned aircraft can facilitate more transactions in less time and accelerate business growth while at the same time improve quality of life and boost retention of both executives and customers alike.
But what if your business can’t make full time use of an aircraft? Costs can be significant if your plane is sitting idle. Leasing your aircraft for part 135 air charter is one answer. But another option to consider is sharing aircraft ownership with a partner—or in some cases, several partners.
Co-ownership allows for costs to be shared among multiple owners, which instantly reduces fixed costs by 50% or more, depending on the number of owners. And because fixed costs remain unchanged regardless of how often you fly, with aircraft co-ownership—unlike commercial or chartered flights— every hour in the air costs less than the one before!
While there are a number of ways to structure shared ownership, each with its pros and cons, here we’ll consider the benefits of a limited liability corporation (LLC), often a preferred solution.
Why Consider an LLC?
In addition to the potential liability protection and tax benefits an LLC provides, LLCs also offer other benefits to co-owners. For example, when compared to the alternative structures—S and C corporations—LLCs have fewer compliance requirements, which quite simply, makes their operation less cumbersome.
Additionally, unlike S corporations, far fewer constraints exist with regards to who can participate as an owner within an LLC and with respect to the number of owners that may take part.
Limited Liability – What Exactly Does it Mean?
While the details of forming an LLC can vary from one state to another, generally speaking an LLC does what it says: limits the liability exposure for its members. In other words, the personal assets of its members—such as cars, homes and financial assets—are to a certain extent protected from related business debts and claims.
It’s important to remember however, that ‘limited liability’ is not absolute, it’s limited! An LLC owner can still be held liable if he or she personally and directly guarantees a bank loan for example, or is involved in an incident that leads to property damage or personal injury, or intentionally does something fraudulent—to name just a few scenarios!
Liability insurance can shield personal assets to close the gaps where limited liability protection falls short, so it’s essential to understand the specific implications of creating an LLC in your state and take necessary steps to ensure your personal assets are protected.
When it comes to taxes, LLCs are not taxed as individual business entities. Instead they have ‘flow-through’ taxation, which means any business income or loss is “passed through” to the LLC owners and reported as part of their personal income taxes.
While taxation is best left to accounting professionals who understand your unique situation, generally speaking an LLC may offer certain advantages to tax payers with respect to deductions, depreciation, and other potential areas of savings.
Additionally, in some cases and with proper planning, it’s possible to avoid sales tax and state use tax on the purchase of an aircraft—in addition to potentially writing off a portion of the plane’s operating expenses. Learn more about potential tax savings here.
Part 135 Air Charter
For co-owners who anticipate underutilization of their aircraft despite their shared use, an LLC is also the easiest way to place their plane on the 135 air charter certificate of an air charter operator such as Shoreline Aviation, who can market and sell unused flying time on behalf of the LLC.
For example, Shoreline Aviation would lease the airplane from the LLC and all payments would go to the LLC. Funds would in turn be divided among co-owners according to their operating agreement, or potentially left within the LLC to help fund owner operating expenses.
The Devil is in the Details
Shared ownership is an ideal solution for those individuals or businesses that need an aircraft for a somewhat limited amount of time—not enough to justify the full cost of ownership—but enough to need more agile flight services than what commercial or private charter services can provide.
An LLC can provide unique benefits to aircraft co-owners. But it’s important to keep in mind that every situation is unique. Working with an expert aviation attorney is an imperative to ensure the LLC is structured appropriately to meet applicable regulatory requirements and create an operating agreement that defines all the specifics of ownership—from how costs will be shared, to how taxes will be handled, to how each member could potentially exit the LLC if desired or needed in the future.
We urge you to obtain competent advice to determine the best strategy for your aircraft co-ownership plans.