Aircraft LLC Operating Agreement
An aircraft LLC operating agreement dictates the terms, conditions, and member guidelines for a flying club organized as a limited liability company.3 min read
2. Elements of an Aircraft LLC Operating Agreement
3. Developing the Operating Agreement
4. Benefits of an LLC
Updated November 24, 2020:
Benefits of an Aircraft Organization
If you are a pilot or own a business that has use for a private aircraft, it may be worthwhile to consider owning a business aircraft. It may be able to bolster your business growth and shorten the time it takes to successfully close transactions and deals while retaining your top customers and executives. This strategy improves your company's efficiency, convenience, and flexibility.
However, the costs of owning an aircraft are high, especially if it's not always in use. For this reason, many businesses share these costs with one or more partners, instantly reducing the fixed costs of owning a plane by at least half. This means that every hour you spend in the air costs less than it would if you owned the plane.
When forming an LLC for your aircraft club, all your members must be U.S. citizens. You can submit a Statement in Support of Registration by an LLC to the Federal Aviation Association for this purpose.
Elements of an Aircraft LLC Operating Agreement
This type of operating agreement typically dictates how the group's members should care for and use the aircraft owned by the club. This creates a feeling of ownership and a positive experience for each of the members. Items that should be covered by the agreement's operating rules include but are not limited to:
- The process of scheduling flight time
- Procedures for maintaining the aircraft, including 100-hour inspections
- Fueling procedures
- Protocol for reporting maintenance issues including those that occur away from the base airport, who issues should be reported to, how they are communicated to other members, and what types of issues ground the aircraft
- Daily minimums for an extended trip
- Protocol for night flying
- Proficiency requirements
- Correct tie-down procedures, including cleaning and storage
- The types of club memberships available, including flying and non-flying (social) memberships
- The maximum number of members
- The maximum number of concurrent reservations per member
- The procedure to resolve scheduling conflicts
- Procedures to follow if an incident occurs, such as who pays the insurance deductible
- When hourly rates and monthly dues are collected
Developing the Operating Agreement
Having solid operating rules in place mitigates problems by having clear roles, responsibilities, and expectations in writing. When writing the agreement, include members in the process to ensure that the guidelines are comprehensive and that everyone feels ownership and camaraderie as part of the club.
In many cases, your members may be pilots who are in a recreational club setting for the first time. Communicating and reviewing the rules helps ensure a safe, professional experience. You may want to post your operating rules online. You can also look at examples of operating agreements posted by the Aircraft Owners and Pilots Association (AOPA).
It's important for a committee to periodically review and update the operating agreement. Guidelines will change based on operational improvements, successful problem-solving strategies, and experience gained with time.
Benefits of an LLC
Unlike corporations, LLCs avoid double taxation by operating as pass-through entities. This means that profits and losses are reported on each LLC member's individual tax return. Talk with a tax professional to determine whether forming an LLC may be advantageous for your aircraft organization. In some cases, purchasing an aircraft as an LLC may allow you to deduct a portion of the operating expenses for the plane as well as avoid state use and sales tax.
LLCs also have fewer managerial and administrative requirements than corporations, which makes them easier and less costly to operate. This entity also has few restrictions about who can own a portion of the LLC and how many owners (called members) the business can have.
Members of an LLC enjoy limited liability, which means that their personal assets cannot be seized to satisfy a business debt or obligation. Keep in mind, however, that exceptions to this liability do exist, such as if a member personally guarantees a business loan, causes personal injury or property damages, or engages in fraud. You can obtain liability insurance to cover instances in which your limited liability may be at risk.
If you need help with an aircraft LLC operating agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.