Limiting Personal Liability With A Corporation Or Limited Liability Company

You have probably read the ads in several of the aviation magazines suggesting that aircraft buyers should "incorporate in Delaware" etc. Also, quite often an aircraft buyer's accountant or attorney will recommend that he or she form a corporation or limited liability company ("LLC") to own the aircraft. But does this make sense?

One of the primary benefits of a corporation or LLC is the limited personal liability protection the entity affords. An owner of a corporation or LLC, simply by virtue of that ownership interest, is not personally responsible for the debts and obligations of the entity, other than to the extent of his or her ownership interest in the corporation or LLC. This is in contrast to a sole proprietorship or a co-ownership/partnership situation in which the individual's mere ownership interest in the aircraft does result in the individual owner being legally responsible for the debts and obligations related to the aircraft.

Similarly, a director/officer of a corporation or governor /manager of an LLC is not personally responsible for the debts or obligations of the entity as long as the individual was acting within the scope of his or her duties on behalf of the corporation or LLC, as the case may be. For example, if an individual leases a hangar on behalf of a corporation or LLC and then the corporation or LLC defaults under the lease, the landlord cannot hold the individual who signed the lease responsible for the default, unless the individual was not authorized to enter into the lease on behalf of the corporation or LLC or the individual otherwise personally guaranteed or obligated him or herself under the lease.

However, in the context of aircraft ownership, this limited liability protection is not absolute. If an individual, who may be a shareholder/director/officer of the corporation or member/governor/manager of the LLC, is operating an aircraft owned by the corporation or LLC and that individual is involved in an accident or incident that results in damage to property or personal injury, that individual could still be held personally responsible for his or her negligence etc., in addition to the corporation or LLC.

Additionally, if that same individual improperly performed maintenance on the aircraft (e.g. changing the oil but forgetting to safety wire the oil drain plug) which later resulted in personal injury or property damage, even though the individual wasn't flying the aircraft at the time, that individual could still be personally liable. Also, if an individual acts outside of the scope of his or her authority to act on behalf of the corporation or LLC, he or she may be held responsible for any consequences of those actions.

So, owning an aircraft with a corporation or LLC can provide some personal liability protection for the individual owners of the entity. However, that entity won't be able to shield an individual owner from liability based upon that individual's conduct. If you are going to own an aircraft and someone else will also fly or maintain the aircraft, a corporation or LLC is probably a good idea. On the other hand, if you are going to be the sole owner and operator of the aircraft, the corporation or LLC likely won't be much help, at least from a personal liability perspective.

If you are unsure whether a corporation or LLC is right for you and your aircraft, you should talk to an aviation attorney, to get the answers you need to make an informed decision.