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failure to maintain the aircraft (e.g., failing to comply with a mandatory AD Notice), which causes mechanical failure and an accident. Both co-owners can be liable to anyone injured or killed or for any property damage. Hopefully, insurance will cover, but again, check exclusions such as flying an unairworthy aircraft.
But how much can that cost? I have had wrongful death cases where over $5 million was claimed for the death of a CEO of a company with a family. And there have been wrongful death recoveries at or over that amount, depending on the state law and the economic and general damages attendant to the particular person(s) killed or seriously injured.
What is the solution? I routinely advise my clients against either type of ownership and rather advise setting up a new entity, such as a corporation or limited liability company (LLC) to own the aircraft. My home state of Delaware is a great place for setting these up, with minimal complex- ity and excellent service. Which entity you select is often based upon advice from your accountant for tax reasons. But if that is not an issue, I usually suggest a corporation.
LLCs are relatively new. The first ones were authorized in Wyoming in 1977, with Delaware coming along in 1991. As such, they may not be as well recognized by courts as corporations (around for centuries), especially in other states, when claiming they are the owner of an aircraft, as opposed to the members of the LLC. This can result in
personal liability for the members. Unlike corporations, LLCs have no by-laws, are not required to hold annual meetings, do not have to file annual reports with the state, etc. So, the “records” that might be presented to prove legitimacy may well just be the Certificate of Formation, the Member Certificates, the Operating Agreement, and the financial documentation. So, a court might decide the LLC is a sham, especially in a state where they are not well recognized.
On the other hand, a corporation is much more formal and more likely recognized as legitimate if set up and operated properly. This means usually having an attorney set it up, getting a “corporate kit” with corporate seal, by- laws, share certificates, initial and annual meeting forms, shareholder lists and contributions, etc. Then setting up a bank account in the corporation’s name, always being billed for aircraft service in the corporation’s name, pay- ing with a corporate check, making all contracts in the corporate name, etc. Not doing all these things can also lead to a court deciding the corporation is not legitimate and “piercing the corporate veil.”
Ocean Reef
Jim Robb is an aviation attorney and holds an ATP Certificate ASMEL with type ratings. Have questions or want to learn more about co-ownerships? Contact Jim at jarobb@aol.com.
September 2021 / TWIN & TURBINE • 5