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Forming a Corporation: Works Well For Groups

Prospective aircraft buyers must decide how to structure the ownership of the airplane. For an individual, the options are to put it in the owners name or to form a corporation to own the airplane. with the individual as the sole shareholder. (An L.L.C. is so nearly identical that we'll use the word corporation to cover both.) If there is to be more than one owner, the aircraft may be owned as a partnership, with each owners name showing on the registration, a limited partnership (so rare in general aviation that we'll ignore it here) or as an asset of a corporation with the owners being shareholders. The quick and dirty advice for which is best is simple: For an individual, a corporation does not provide any advantage unless the owner/pilot is doing significant charitable flying (medical mercy, environmental, etc.) and wants to use the available tax deduction for renting the airplane to him or herself. For group ownership, a corporation provides benefits that are worth exploring if the owners are willing to do the paperwork, reporting and file the required tax returns.

Rick Durden
Verified

Prospective aircraft buyers must decide how to structure the ownership of the airplane. For an individual, the options are to put it in the owners name or to form a corporation to own the airplane. with the individual as the sole shareholder. (An L.L.C. is so nearly identical that we’ll use the word corporation to cover both.)

Corporate Airplane Ownership

If there is to be more than one owner, the aircraft may be owned as a partnership, with each owners name showing on the registration, a limited partnership (so rare in general aviation that we’ll ignore it here) or as an asset of a corporation with the owners being shareholders.

The quick and dirty advice for which is best is simple: For an individual, a corporation does not provide any advantage unless the owner/pilot is doing significant charitable flying (medical mercy, environmental, etc.) and wants to use the available tax deduction for renting the airplane to him or herself. For group ownership, a corporation provides benefits that are worth exploring if the owners are willing to do the paperwork, reporting and file the required tax returns.

So Sue Me

When corporate ownership of aircraft is discussed, protection against personal liability is usually the first topic. Many pilot/owners believe that having a corporation own their airplane somehow provides magic liability should they have an accident while flying.

It doesnt. No matter how the aircraft ownership is structured, the pilot whose sweaty palms were on the controls at impact is the one who is facing personal liability if he or she were negligent and caused the accident. The protection against potential liability is insurance. If the airplane is a corporate asset, the insurance should name the corporation and each of the shareholder/pilots as insureds.

There is a liability benefit of corporate ownership when there is group ownership. In a partnership, each partner may be held personally liable for the actions of the other partners. In a corporation, the shareholders are not personally liable for the acts of another shareholder. Nevertheless, insurance is still the way to protect against liability-and cover the cost of defending a lawsuit.

(Corporate) Death and Taxes

For a corporation to remain viable there are annual filings required. Should they not be made the state may decide that the corporation is no longer in good standing and may act to end its existence and any benefits of incorporation will be lost. Setting up a corporation means being willing to comply with the annual requirements to keep it in existence.

Incorporation requires that a federal and (and usually state) tax return be filed annually, an expense for the corporation. It also may mean that the aircraft is depreciated. This can be a tax benefit for the shareholders, as most owners chose the subchapter S option so any corporate profits or losses flow directly to the shareholders, as is the case with an L.L.C. However, it also means that when the airplane is sold there may be a significant “gain” on the sale (sale price over the depreciated value). That can be quite a tax hit for the shareholders.

Sometimes an aircraft will be sold as a corporate asset. The buyer just buys all the shares of the corporation and gets the airplane in the deal. Its one technique that is used to avoid sale tax on the transfer of an airplane because the owner of the

Rick Durden

Senior Editor Rick Durden has written for Aviation Consumer since 1994 and specializes in aviation law. Rick is an active CFII and holds an ATP with type ratings in the Douglas DC-3 and Cessna Citation. He is the author of The Thinking Pilot’s Flight Manual or, How to Survive Flying Little Airplanes and Have a Ball Doing It, Vols. 1 & 2.