N

NBowers

Active Member
The LLC discussion comes up from time to time. The unthinkable usually happens to the other guy and the rest of us read about it. In 1990, my Dad and I entered into a builder agreement with one of the greatet and wisest men I have ever known: Harry Ferran, a very accomplished businessman and incredible aviator. Harry had the wisdom to place our project in an LLC (actually, SubS corporation). Harry wanted an RV4 to fly around the world and when Harry envited you into his court as a partner, you responded with great honor. Dad and I built Harry an RV4 that could fly around the world and look good doing it. We lost Harry before he could get us around the world and then we lost our RV4 along with my stepson and another great freind that left a wife and 4 good kids. This was a shattered world.

It has the potential of getting even worse. The crash was an accident that can happen to any one of us. It was no one's fault unless you can blame aviation in the first place on the Wright brothers.

Cutting to the chase, my Dad was the registered builder and I was the guy who endorsed Bob, my stepson to fly the RV4 after a very thorough checkout and many lectures on ad hoc aerobatics plus Dad hated aerobatics in our "heavy" RV4 because he would find a spec of oil on the hangar floor. Well, semi-accidental aerobatics led to 2 fatalities.

I was at risk, personally. Dad was at risk as the builder and there is no known way around this exposure. After speaking with lawyers on my side and lawyers even on their side, two items prevented what appeared to be the inevitable lawsuit: The kitplane 51% rule and case law, and the fact that we maintained the aircraft in a corporation. I must emphasize that we ran the corporation by the book, which is easy to do. It was a stand alone entity responsibly run. I believe most attorneys will make this distinction as crutial in deciding the strength of the corporate vail.

To this day, I do not own anything with an on-off switch. A corporation owns everything. My lesson learned by the wisdom of Harry Ferran.

On the subject, as I have written before, one must understand their insurance policy and what it means. Dad bought an over the counter policy that was recommended over the phone. The risk amount was frightenly low as I discovered the evening of the crash. It's too late to find out what a policy means after the fact. Possibly the good news was that it was of very little value because, with the corporate vail, there just was not enough for the legal industry to get excited about. I am ashamed, however, for the proceeds offerred to our freinds widow, but then, I had nothing to do with purchasing the policy. Had the policy been large, the insurance company would fight it and drag us through the process re-living the event. I now think in terms of reasonable without creating a legal contest. Too little insurance could be construed as negligence. Too high of a policy is a target with a defense you get to participate in. Something to think about.

The real shocker, and I challenge some response from the experts, as I bowed out at my wife's request to pursue the matter, was the percieved insurance coverage on Bob, the pilot. Bob was listed as an additional insured and met all requirements of the policy and the FAA to be pilot in command. Although the policy stated a tandom two occupant aircraft, the insurance company would not accept Bob as an occupant and his mother was not entitled to proceeds. This was confirmed by some big name attorneys, including friends in the EAA. I would have contested, but to do so, I was informed that case law was against me and importantly, Debra requested that she not have to endure so much for so little. I related this story to many listeners who have stated that "everybody knows that the pilot is not insured". What? It is amazing what is left to case law and what you think it says, is not what it means.

It pays to be informed. Prior to the accident is a very good time to know that you took the 10 minutes and $350 to create an LLC (accounting wise is a bit more involved), register your aircraft, boat, 4-wheeler, bike, Seadoo, possibly even your Pit Bull into an LLC and really attempt to protect yourself. Ask about your insurance policy and know that if you are the pilot, your estate may not receive anything. That's why you have accident insurance. Debra had accident insurance on her son, unfortunately, down in the fine print, it excluded aviation events.

My version of the LLC debate,

Ned Bowers
 
question

Your story is heartbreaking in more ways than one. So sorry about the tragedy and then having to deal with the legal process and insurance issues with friends and family. I can't imagine much that would be more difficult to handle.

My question is how do you register a homebuilt with an LLC which suggests commercial activity? And commercial operations are prohibited in a homebuilt airplane. I admit very little knowledge of LLCs and how they function and what an LLC can own. I would have thought that assets would need to be related to the LLCs business activities.
 
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LLC Commercial Activity

Your question is more of a legal-accounting "correctness" issue. I am neither, however, I have formed numerous LLCs over a 30 year span connected to some sort of "business" activity. I cannot imagine anyone who cannot find some business purpose in some interest or activity. Once again, some advice from an accountant is good planning and you may find some excellent tax deductions you never dreamed of that meet traditional IRS tests (deductions that go on the front page of your 1040 - think AMT). Granted, in addition to filing for an LLC (cost $300 to $400) on the internet (easy). Then, an accountant files your LLC or SubS election, $500? A separate bank account and yearly filing fees. Yes, some minor homework, but in my case (that we are all exposed to), may have been worth $100,000 in legal fees, even if I won my defense. If I lost (as an individual who signed off the pilot), who knows what the financial hit would have been. Worse, would be months and months of agony in the legal system being billed as a criminal. It is just too simple to register your aircraft in an LLC and follow the simple rules.

Ned Bowers
 
Build9A said:
And commercial operations are prohibited in a homebuilt airplane.
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This is absolutely not true. There are a couple of specific restrictions in the typical Op Lims.

Have a search on commercial operations here and see what you find. You can also check your local FSDO or the EAA.
Best,
 
OK, but

Kahuna said:
This is absolutely not true. There are a couple of specific restrictions in the typical Op Lims.
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OK...you are correct....I found airshow compensation, transition training, test flying, all within previous posts by you. I guess there could be more exceptions.

I am none of the above and don't plan to be just like many others. I interpreted the LLC suggestion to be for everyone, not just those limited to the exceptions. I'm still not clear if the LLC is applicable to a purely recreational aircraft. I hope that it is, because it does sound like it could provide some additional liability protection.
 
There is no magic bullet

Be careful in assuming there is a solution for everybody when it comes to protecting yourself. A lot of pilots I've talked to assume putting the plane in an LLC will keep you from getting sued, when that's simply not the case most of the time. Since a majority of RV's (I'm assuming) are flown by the owner only, putting the plane in an LLC does little, if anything, to protect you. If you're the pilot, you will be sued as the PIC no matter who owns the airplane. Same with you car. The car can be owned by an LLC, but if you are the only one that ever drives that car, you have wasted your money by putting it in the LLC.

I'm not a lawyer, by the way. I'm just going by things I've learned about the LLC process over the last few years.
 
If you listen to the podcast I linked to, that aviation attorney will answer a lot of what will and won't cover you and your passengers, ...take that info and call a legal eagle in your area and see how forming a legal entity to hold the aircraft may or may not apply to you in your situation/state/country, etc.
 
LLC's and Aircraft

I deal with corporate aircraft in my working world. Most that are privately held, as opposed to corporate aircraft, are in an LLC. Because the aircraft is owned by a corporation does not mean it is used commercially. Commercial operations means it is used for compensation or hire. Private use falls under Part 91 where commercial is 135 or 121. The commercial concern is not about who owns it, only how it is operated. Most corporate owned aircraft are operated private Part 91. So put your aircraft in an LLC if you want to.

By the same token, I am a partner in an LLC that is the company I work for. You can be assured that even though that is the case, as a partner, I am jointly and severally responsible for what happens within the company. If the company takes a dump, you can bet that the tax man, banks, lawyers, and others will be knocking on my door. I'm sure the LLC gives me some protection, but I'm not sure how much. Here in Texas, they probably can't take my homestead, but money is fair game.

Don

It is my opinion that the best form of protection is to not have deep pockets. The lawyers won't mess with you if they know they won't get anything. :rolleyes:
 
One thought that comes to mind is the pre-planning required. If you plan to have a corp own the plane, wouldn't that company have to purchase all the parts BEFORE it owned by the LLC? If one personally buys all the parts and builds the plane and then puts it into a corp, it screams pierced veil to me.

As I also understand the best protection is to form a Nevada corp (sub-s) as they have the best protection laws. All you need is a registered agent in Nev which lawers will offer.
 
The corporate entity will not, in general wipe away your personal liability. In general, people are always liable for their own actions and omissions.

YOU built the plane.

YOU were the pilot.

It will be nearly impossible to change those two facts and still have an AMATEUR built part 91 flight. I cannot think of any way to do it without falsifying a handful of federal documents and at least one sworn affidavit.

By the way, you are not a "partner" in an LLC, you are a "member". Telling the world that you are a "partner" will get you and the other members of the LLC treated like partners by third parties...you do not want that. This assumes that TX follows the conventions of UPA/RUPA and general LLC law. YMMV.

Shallow pockets are a great lawsuit avoidance. In the end no one can promise you that you will not be sued, or that you will win any lawsuit with preemptive structuring. If you meet a lawyer who promises such, be careful. You can improve your chances to have protection from very specific exposures, with careful planning.

In the end the best protection is to conduct yourself with prudence. You do not have to build a perfect airplane, but if you fail to use due care, and that failure kills someone down the road...you will be and probably should be liable.

You do not have to be a perfect pilot. But if you are wantonly careless, and it kills someone or destroys their house, you will be and probably should be held accountable to those people.

We can all think of horribkle cases where we believe the system got it wrong. But, I deal with juries all the time, and I can tell you that a collection of 6 or 12 ordinary people, properly instructed by the judge, is an intelligent and effective fact finding body. I think that juries get it right far more often (By a HUGE margin) than they get it wrong.
 
How the LLC worked for me

Within 4 hours of the accident, a very respected aviation attorney, freind, and hangar neighbor heard about the accident and arrived at our home. Once we collected our shock and sorrow, his first request was to see all corporate books and the insurance policy. I have spoken about the insurance part sevral times. I agree with all of the replys thus far. No corporate shield can protect you from personal liability and I stood fully liable for signing Bob's log book, as did all of his flight instructors. My Dad stood liable as the builder. An LLC cannot shield the individual acting as an instructor or a builder. However, the point I am trying to make is that any and every legal shield to liability should be used. An LLC and the requirements to create and manage costs about the same as cheap handheld GPS. It is way too easy to create and manage an LLC to add one layer of protection. Those layers become cost items as viewed by a plaintiff attorney. Difficulty to prosecute can increase the cost, thus decrease some of chances of litigation. It worked in our case as my Dad's reputation as a mechanic-builder was a 10 out of a 10 and my credentials were also 10 out of 10 to judge the PIC's ability. With my thousands of hours in 1, 2, 3, and 4 engine tailwheel airplanes, I was very comfortable with Bob's ability in the RV4 along with some of his limited experience in a Champ he built with his Mom and Mustang time with Lee Lauderback. The airplane was a grand champion and Bob was a very good stick, but had limited total time. Our personal exposure would have been tough (not impossible) for a plaintiff to go after. If the aircraft were in our personal name(s), that becomes the easy target that places all personal assets on the table and a free pass for the plaintiff to secure far more than the insurance policy value. In our case, enough road blocks sent the plantiff attorneys after the employer of the second fatality as he was visiting on business. That raises another topic if you own a business with traveling employees. This real life experience convinced me to place everything I own in an LLC. I own nothing.

Another example of an LLC that may have prevented litigation involved my son driving his race car. A pedestrian stepped in front of his car entering the race track and was severily injured. I run an in-car camera and the entire event was caught on tape except for the last 1/2 second when the track lights blinded the camera (and the driver). The driver was not negligent nor was he operating in a wreckless manner. Possibly I was negligent for allowing a 14 year-old drive race cars (since he was 5). However, when the plaintiff attorneys began hovering, they discovered that my entire race operation was in an arms length LLC, I never heard from them again. If the car was in my name, I can only imagine what that could cost as typically, one does not carry insurance on a racing operation.

An LLC or a SubS is a tool that works. It is separate from the conduct of the individual as it has been pointed out. As most of us operate on the good side of responsibility, our liability for our actions is acceptable. The LLC manages your net worth and your sanity if the unthinkable were to happen.

Ned Bowers
 
I've practiced law for almost 30 years and done insurance defense for more than 20 years includiing aviation defense. I've also done plaintiff's cases. I can assure you that mere corporate ownership of an aircraft does nothing to protect a builder, operator, pilot or mechanic from liability for their own personal lack of reasonable care. Moreover, even if the builder, operator, pilot or mechanic uses reasonable care, he or she may be sued anyway. The plaintiff can always claim negligence and the costs of defense can be horrendus. The best protection is insurance. Even if the policy limits are low, the insurance company will provide a defense and save the insured from the costs of proving lack of negligence.
In some circumstances, in some states, having passengers or aircraft purchasers sign waiver of damage, assumption of risk, release or indemnification documents may provide some protection. However, the courts in most states are reluctant to enforce such documents even if they are carefully drafted. For example, Washington State courts do not honor releases signed by parents for their minor children to engage in sports (and probably to fly around in small airplanes). Thousands of schools routinely seek such releases but a few years ago the state Supreme Court held a parental release was not valid to protect a ski racing organization from liability for an accident involving a young ski racer. In some circumstances, with an adult who is knowlegable about the risk and voluntarily expressly assumes the risk, an assumption of risk document would work.
In short, a corporate entity does not protect individuals from liability for their personal actions or ommissions, insurance is the best protection and written waivers of liability may give some protection sometimes.
 
I've been around airplanes and healthcare most of my life. I've been advised many times to keep up as much insurance as i can afford. You might never do anything "wrong" but that doesn't shield you from getting sued in this day and age where everybody wants to hit the legal version of a lottery. You can get a million dollar rider policy really inexpensively from your car/home insurer. Mine costs about $250 per year. Cheap for the peace of mind. This is a very timely thread as I've been reading about the RV-10 that went down yesterday in south Alabama. They were based several counties away from me and were on the way to SnF.

Steve, you are correct in my book. My attorney friends in aviation go that route also.


stearmansteve said:
I've practiced law for almost 30 years and done insurance defense for more than 20 years includiing aviation defense. I've also done plaintiff's cases. I can assure you that mere corporate ownership of an aircraft does nothing to protect a builder, operator, pilot or mechanic from liability for their own personal lack of reasonable care. Moreover, even if the builder, operator, pilot or mechanic uses reasonable care, he or she may be sued anyway. The plaintiff can always claim negligence and the costs of defense can be horrendus. The best protection is insurance. Even if the policy limits are low, the insurance company will provide a defense and save the insured from the costs of proving lack of negligence.
In some circumstances, in some states, having passengers or aircraft purchasers sign waiver of damage, assumption of risk, release or indemnification documents may provide some protection. However, the courts in most states are reluctant to enforce such documents even if they are carefully drafted. For example, Washington State courts do not honor releases signed by parents for their minor children to engage in sports (and probably to fly around in small airplanes). Thousands of schools routinely seek such releases but a few years ago the state Supreme Court held a parental release was not valid to protect a ski racing organization from liability for an accident involving a young ski racer. In some circumstances, with an adult who is knowlegable about the risk and voluntarily expressly assumes the risk, an assumption of risk document would work.
In short, a corporate entity does not protect individuals from liability for their personal actions or ommissions, insurance is the best protection and written waivers of liability may give some protection sometimes.
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Libility insurance rider

Unfortunately most liability riders will not cover aviation related accidents. At least mine does not and I tried to find one that would... without success..
 
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