October 1, 1998
ROBERT E. HACKMAN
AOPA's Aviation Services specialist answers many calls on different types of aircraft ownership. Members who are asking about the different types of ownership options may be realizing a lifelong dream of ownership, or purchasing an aircraft to make their business more productive.
The FAA offers six ownership options on aircraft registration form 8050-1, available from AOPA. Individual, partnership, corporation, co-owner, government, and non-citizen corporation are all options for the general aviation aircraft owner. Selecting the proper type of ownership is more than just a selection in a box. Understanding each type, along with its benefits and drawbacks, will go a long way in making your ownership experience enjoyable.
Call the AOPA Pilot Information Center for expert help and advice for pilots, from pilots, at 800/USA-AOPA (800/872-2672). Information is available on aircraft buying and selling, titles and liens, regulatory interpretations, FAA enforcement actions, medical issues, preventive maintenance, international flight operations, and flight training, among many other subjects.
Individual ownership is very straightforward. One person assumes the ownership of the aircraft. The person who signs the registration form is the owner and must be listed on the form. Individual ownership has many benefits, including sole discretion in scheduling of the aircraft; maintaining the aircraft; and selecting paint color, interior fabrics, and avionics. The Internal Revenue Service simply sees the aircraft as an asset of the individual owner and could expect a capital gains tax on its sale if the aircraft has increased in value. For information on taxes, request our Pilots Guide to Taxes: Income, Sales, Use, and Personal Property. Individual ownership has some drawbacks along with its benefits. The individual owner is responsible for payments for the aircraft financing, maintenance, insurance, storage, and reserves. This may prove to be somewhat overwhelming and could be too high a price to pay for all of the freedoms associated with this form of ownership.
Co-ownership allows two or more persons to own an aircraft jointly. Their titles on the registration form are co-owner, and the signatures of all owners are required on all aircraft documents. The major benefit of co-ownership is sharing all costs associated with the aircraft. This offers a larger financial base from which to draw for aircraft upgrades and repairs. On the flip side, many of these benefits may also be seen as possible problem areas. Too many people involved in the decision-making process may cause problems in getting things done. Not being able to agree on simple matters may lead to later problems with aircraft scheduling and engine overhauls. Liability may be assumed by all of the co-owners in the event of improper actions by one of the individuals involved. However, in most cases the operator of the aircraft is generally held to be responsible. AOPA offers a Pilot's Guide to Co-ownership booklet. All of AOPA's booklets are available on AOPA Online or by calling the Pilot Information Center.
Partnership is perhaps one of the most misunderstood forms of aircraft ownership available. Many people will mistakenly select partnership in place of co-ownership. This will not necessarily cause any problems; however, it may open the door for problems down the road. A partnership is a formal group of people who are operating a business for profit, usually registered with their state for state tax purposes. This allows one person with the proper title and position within the partnership to sign any and all aircraft documents. The FAA may allow an aircraft which has been registered within a partnership, to be sold with the signature of only that one person. Theoretically a person in a partnership could sell an aircraft without the other partners' consent or knowledge. A co-ownership requires signatures from all parties whose names are listed as owners. The state may also require the partnership to be registered within the state.
The question is frequently asked whether an aircraft owner, or group of owners, should hold title to the aircraft through a corporation as a means of limiting liability for personal injury or property damage, or for income or other tax reasons. A corporation is a legal entity, chartered under state law, that is separate and distinct from its shareholders and officers and that has the unique quality of unlimited life. It is a vehicle designed to foster investment by insulating the investors from most of the liabilities of the business. For more details on incorporation and limited liability corporations, ask for our free information package on this subject.
It is essential that aircraft owners have sufficient liability insurance coverage so that the insurance company will have an incentive to defend the pilot and other operators of the aircraft. Call us for a copy of the Pilots' Guide to Insurance: Renters, Aircraft Hull and Liability. As a general matter, however, liability in aviation is imposed on the operator, not the owner, of an aircraft. Accordingly, if you are the pilot in command or perform other acts that indicate the aircraft is operated or maintained under your direction and control, you may be liable for any injuries or death that result. You cannot limit your liability for such matters by incorporation. Thus, an individual owner will derive little protection from incorporation, while a co-owner may derive some protection against the acts of his co-owners (for which he is usually not going to be liable anyway).
For further information on the various structures of ownership, and what might be right for your situation, look to AOPA for that first-hand information.
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