Answers for Pilots: Ownership Options

May 1, 2010

Longer days and warmer weather provide welcome opportunities for more flying after work and on the weekends. Perhaps you’ve taken a couple of flights in the past month, and went to schedule a few more only to find the rental aircraft at the FBO booked for the next couple of weeks. Wouldn’t it be great to have an airplane at your disposal whenever you had some time to fly? You might be surprised to learn that there are many ways to own an aircraft.  If it’s not possible for you to buy an aircraft yourself, you can team up with one or more pilots to co-own the aircraft. AOPA has a robust Web section designed especially for aircraft owners, which offers information on ownership options: partnerships, co-ownerships, flying clubs, and fractional ownership.  

Partnership.

Although the terms “partnership” and “co-ownership” are often used interchangeably, a partnership is different from a co-ownership. A partnership involves an association of two or more persons who carry on as co-owners of a business for profit, making a partnership more complex than simple shared ownership. The objective of a partnership is to make a profit. So, if all you want to do is share the ownership of an aircraft with another person, you should be co-owners, not partners. This form of ownership is not very common for one important reason: partners are typically personally liable for the acts of their partners.

Co-ownership.

Co-ownership is nothing more than two or more individuals sharing the responsibilities of owning an aircraft. Co-owners are typically pilots whose aircraft needs and flying habits complement each other. Obviously, when you spread the costs of aircraft ownership among multiple owners, your costs decrease. The simplicity of this arrangement is what attracts a number of aircraft owners to a co-ownership arrangement. The most common co-ownership arrangement is a tenancy in common.

Incorporation for individuals and co-owners.

AOPA is often asked about the pros and cons of incorporation as a kind of aircraft ownership for either an individual or a co-ownership of two or three people. Corporations have their own legal identity, which takes title to the aircraft. This offers the advantage of separating one's other personal assets from that of the aircraft. Incorporation is usually not practical for individual owners and may not be the best form of ownership for those sharing an aircraft.

When an aircraft is moved into a corporation, an individual does not own a direct interest in the aircraft. Instead, they own an interest (share) in the corporation and the corporation owns the aircraft. 

Generally, liability in aviation is imposed on the operator, not the owner, of an aircraft. If you are the pilot in command or perform other acts that indicate that the aircraft is operated or maintained under your direction and control, you will have exposure to liability for any injuries or death that results. You cannot limit your liability for such matters by incorporation. Thus, an individual owner/operator may not derive much protection from incorporation, while several people who own and operate the same aircraft may derive some protection against the acts of his co-owners. 

The two main drawbacks to incorporation are taxes and corporate formalities. Because of the complications involved, consultation with an attorney is recommended for those considering incorporation.

Limited Liability Companies (LLCs)

Limited Liability Companies, like corporations, are an identity separate from a natural born person. Instead of shareholders, people who own equity in an LLC are called members. LLCs are typically less expensive to form than corporations, and are easier to maintain.

Like corporations, LLCs are a popular choice when it comes to aircraft ownership because they help to isolate the aircraft, and more importantly, liabilities arising from the ownership of the aircraft, from the individual member's personal assets. In a case where several people will be invested in and utilizing one aircraft, if any one member has an accident which causes damage to a third party, the members not involved in the accident will have their exposure to liability reduced. Typically, a party suing will only be able to reach the LLC's assets, not the personal assets of the individual members.

LLCs may be a more suitable way of ownership than incorporation because of their simplicity and tax treatment.

Flying Clubs.

Sharing an aircraft with two or three other pilots is one thing, but when that number grows to five, or six, or more, the arrangement takes on an entirely new complexion, typically transforming into a flying club. A flying club is not a description of ownership, but more of a description of a group of people with common objectives. Incorporation is often the most desirable way to organize a flying club with more than four members. Because a corporation is a legal entity separate from the individuals who make up the corporation, individual members may not be personally liable for contracts made in the name of the corporation or for injury or property damage committed by other members of the corporation. In addition, a corporate structure makes it a bit easier for the individual to transfer his or her interest in the club.

Fractionals.

Fractional ownership is a term used to describe a series of arrangements made between a pool of individuals. A true fractional ownership requires more than one aircraft. Any one aircraft is co-owned by many individuals (an individual may be a person or a company) who execute a master interchange agreement between all of the multiple aircraft co-owners. Typically, there is also a multi-year aircraft management agreement, usually with the company who sold them the aircraft and often including optional pilot services. Operational hours per year are typically limited by the management agreement. 

Fractional ownership offers a company or an individual the option to purchase shares of an aircraft, instead of buying an entire aircraft. The majority of these companies offer shares in business jets, although there are a small number of companies that offer shares in piston aircraft. Fractional ownership was designed to be flexible in order to meet the needs of the customers. Therefore, as little as one-sixteenth of an aircraft can be purchased, which offers around 50 hours per year, or as much as one-half of an aircraft can be purchased, depending on how many hours are needed. The most common amounts purchased range from about one-eighth to one-fourth. Fractional owners pay a percentage of the price paid for an aircraft that is proportionate to the amount of hours they want available per year for the duration of the contract, although under most circumstances, additional hours can be purchased if the need arises. There is also a fee charged for all occupied flight hours that fluctuates with fuel prices, as well as a monthly overall fixed management fee that covers maintenance and administration of the program. In return, customers receive a predetermined amount of hours in the aircraft of their choice, based on what their needs are and how much they are willing to pay. Fractional owners are guaranteed that this aircraft, or another aircraft of the same model, will be available to them 24 hours a day, 365 days a year, with as little as four to six hours advance notice. The management company typically takes care of scheduling, staffing, flight planning, weather, communications, maintenance, catering, and insurance on the business jets and turboprops; and scheduling, maintenance, and insurance on the piston aircraft.