Should our Mooney be in an LLC

[ryoder]

People tell me to put my airplane and rental property in a LLC or trust. Too much work for what I assume will be ignored by the courts.

[DonMuncy]

You need to talk in depth to an attorney in your state before you decide.

There are some advantages in transferring part ownership (as in you co-own with someone else.)

There is potential liability advantages, only if YOU ARE NOT flying the plane. (As in another co-owner is piloting it, or you have it loaned or rented out).

There are expenses involved in setting it up and maintaining the LLC.

And some PITA ritual things to go through to maintain it. If you don't do it properly, you can lose the liability protections.

My opinion is, that for most of us, it is not a workable deal, but not everybody.

I am an attorney, but did not practice in this area, so these are generalities.

[peevee]

Llc requires almost no paperwork. In my state once a year a 10 dollar annual statement is all. Heck I have one just to transfer nfa weapons because it's so easy to maintain.

[midlifeflyer]

Llc requires almost no paperwork. In my state once a year a 10 dollar annual statement is all. Heck I have one just to transfer nfa weapons because it's so easy to maintain.

Some states are as simple and inexpensive as Colorado. Others require more. But except for an operating agreement, which is required in some states, not required in others, but always a good idea, I'm not aware of any state in which it is much of a paperwork burden. Heck, I think in Arizona, which I think someone already complained about, there's not even an annual reporting requirement.

[Parker_Woodruff]

Your best (and most responsible) legal protection is good insurance with appropriate liability limits.

 

As low as rates have fallen to, you all should consider increasing your passenger bodily injury sublimit to $200K or higher.  Or make it a "smooth" limit (no passenger bodily injury sublimit).

[Bravoman]

Your best (and most responsible) legal protection is good insurance with appropriate liability limits.

 

As low as rates have fallen to, you all should consider increasing your passenger bodily injury sublimit to $200K or higher.  Or make it a "smooth" limit (no passenger bodily injury sublimit).

As a pilot, you cannot insulate yourself from liability exposure. Liability coverage is relatively cheap and the guiding principle is to insure commensurate with your net worth. If you are worth 5mm and you have a 200/1mm policy or even 1mm smooth, you are way underinsured for the risk involved with what we do. If an accident occurs and a passenger(s) is killed or worse yet catestrophically injured, under insuring could leave the pilot or his estate destitute. There are ways to insulate assets by, for example, vesting assets solely in the name of a spouse, but this has its own set of perils unconnected to casualty risk. At the end of the day insurance is cheap, and IMO the best course of action is to insure with a sufficient margin exceeding net worth just to be on the safe side.

Regards, Frank

[midlifeflyer]

Almost every LLC I've ever seen is in Delaware. I think it has something to do with taxes there. I'm not sure.

 

Delaware has, for decades, been the go-to state for incorporation by major companies. In large part it was due to a solid and company-friendly statutory and court system dealing with corporate formation and corporate governance. "What's good enough for EJ Dupont (incorporated in Delaware in 1915) or Ford (incorporated to Michigan in 1903 but later changed to Delaware) is good enough for me" so even small businesses started gravitating to it. That carried over when the LLC form was created and ultimately adopted in Delaware.

 

That's why you see a lot, although, opposite your experience, by far most LLCs I've seen have been organized in the state where the company is going to do business since it ultimately saves on fees and paperwork. A lot depends on the specifics - the people, the goal, and the states, but off-hand I can't think of any good reasons to incorporate a simple aircraft co-ownership LLC in a state other than ones own.

[Marauder]

Delaware has, for decades, been the go-to state for incorporation by major companies. In large part it was due to a solid and company-friendly statutory and court system dealing with corporate formation and corporate governance. "What's good enough for EJ Dupont (incorporated in Delaware in 1915) or Ford (incorporated to Michigan in 1903 but later changed to Delaware) is good enough for me" so even small businesses started gravitating to it. That carried over when the LLC form was created and ultimately adopted in Delaware.

That's why you see a lot, although, opposite your experience, by far most LLCs I've seen have been organized in the state where the company is going to do business since it ultimately saves on fees and paperwork. A lot depends on the specifics - the people, the goal, and the states, but off-hand I can't think of any good reasons to incorporate a simple aircraft co-ownership LLC in a state other than ones own.

Thanks for the kind words about Delaware. In fact, all of these incorporations have a benefit to us Delaware residents -- lower real estate taxes. My home is in a development that straddles Delaware and Pennsylvania. My real estate taxes in Delaware are $4,800. My PA neighbors are paying $11,000.

Please keep incorporating in Delaware!

Sent from my iPad using Tapatalk

[tony]

ouch!  now I remember why I left the northeast

[LANCECASPER]

Delaware does not have Sales Tax on purchases and they have a low corporate (franchise) tax.

[midlifeflyer]

There are many reasons big companies incorporate in Delaware but most are legal. It's primarily a long history of corporate legal expertise and consistency. And more than a century of that gives large companies a sense of comfort and predictability. It also means that corporate law specialists throughout the US tend to understand Delaware corporate law. After all that time and consistency, there is probably also a bit of mystique tossed in.

 

Taxation is pretty much secondary. Delaware's franchise taxes are lower than some; higher than others. Sales/use and income taxes are based on purchase, asset and income location, so that's not typically a factor, since most large "Delaware corporations" aren't based there. It's solely an organizational tool.

 

Irish - that's probably what you are seeing. The "big guys" at work. Those with multistate business. There are definite advantages to them. Those really don;t exist with smaller businesses that will generally find it cheaper and more efficient to organize in their home state. 

[Joe Zuffoletto]

I started renting my Mooney to a friend this summer and my attorney strongly recommended that I put the plane into an LLC. You never know in the legal world, but he told me that having the plane in the LLC could help shield my other assets from tort action if injuries or death occur due to negligence on my friend's part while he's operating the aircraft. Fortunately, setting up an LLC in Colorado is easy and inexpensive.

 

As part of this process, I also set up a bank account for the LLC, and my friend writes his rent checks to that account. I will also use this account to handle all the expenses for my Mooney going forward. My attorney tells me this is essential to strengthen the veil of protection the LLC provides.

 

Other items to consider: You'll have to have your insurance policy redrawn for the LLC, and if you have a loan on the aircraft, you'll have to refinance it.

[midlifeflyer]

I started renting my Mooney to a friend this summer and my attorney strongly recommended that I put the plane into an LLC. You never know in the legal world, but he told me that having the plane in the LLC could help shield my other assets from tort action if injuries or death occur due to negligence on my friend's part while he's operating the aircraft.

That's pretty much the primary reason for setting up a light aircraft ownership LLC. Not your liability if you injury someone. LLCs don't protect you from that. But trying to protect from liabilities created by others, whether borrowers, renters or co-owners.

[DonMuncy]

Remember that if your renter causes some bad damage with the plane, you will get sued too. (Plaintiff's lawyers sue everybody and then eventually toss out the ones they can't make any kind of a case against). But you (or your insurance carrier) will spend considerable money defending you until you get out. Hence the need for good insurance as well as an LLC. (Does it surprise anyone that I practiced many years on the defense side of this equation)

[ArtVandelay]

That's pretty much the primary reason for setting up a light aircraft ownership LLC. Not your liability if you injury someone. LLCs don't protect you from that. But trying to protect from liabilities created by others, whether borrowers, renters or co-owners.

Or mechanics, so let the A&P do the work.

[Carl S]

In researching an LLC here in Texas, it looks like a registered agent (ra) may be the way to go as far as a business address and point of contact. Anyone in the DFW area have experience with and reccomendations for an ra contact? I'd like to interview a few to get a feel for how they handle business. Someone earlier mentioned using an attorney as the ra. The point made sounds good but how necessary would this be?

[DonMuncy]

Carl,

The state requires all corporations doing business in Texas to designate a registered agent. This is just for the purpose of having a person who can be served with papers if the corporation is sued, and perhaps to receive other documents that puts the corporation on notice of the information.

The state is most worried about corporations that do not have a place of business in the state, and the registered agent must have an address in the state. Most corporations I am aware of list one of their officers to be the registered agent.

I believe anyone can be designated. His only job is to accept any service, notice or other document and make sure the proper corporate officer receives it.

Probably the reason someone suggested an attorney is because they are generally presumed to be responsible enough to make sure the corporation is notified.

Typically, if you have an accident with a vehicle with ABC, Inc. on the side, you call the Secretary of State and ask who the registered agent is. You then serve lawsuit papers on that agent, and they are legally in the suit.

[N201MKTurbo]

My LLC. Is in ND. My insurance agent agreed to be my registered agent. He just forwards everything to me. Everything is in ND. Because my ex partner was from ND and he set it all up.

[M20F]

Remember that if your renter causes some bad damage with the plane, you will get sued too. (Plaintiff's lawyers sue everybody and then eventually toss out the ones they can't make any kind of a case against).

Replace the word "any kind of case against" with "anyone who doesn't have money". If you have money and are even remotely related to the incident you will be sued and settlement offered. There is no easy way on this one. I agree with what Joe said which is make the LLC as strong as possible to limit settlement and as Parker said to insure accordingly. This at least minimizes the expense and ideally insurance pays it.

[DonMuncy]

You are right. Virtually all litigation is insurance driven. If they really have almost no case, they will settle for a low enough price to make it cheaper than the cost of defense. If they have NO case, the defense can get you out with virtually no cost, but it usually takes time. If you have no insurance, they will most likely drop you fairly soon unless you look like you have a lot of personal assets.