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Legal Issues in an Aircraft Partnership

  by Andrew Czernek,

Advantages of Partnerships
Disadvantages of Partnerships
Financial Issues
Other Issues
Legal Organization

Agreement for a Non-Profit Corporation
Agreement for a Lease Corporation
AOPA Resources

I’m not a lawyer, nor do I play one on TV but I’ve been involved with the organization, taxes and dissolution of 4 organizations.

As previously mentioned, the State of Washington has a non-profit corporation structure that’s easy to establish and easy to maintain. We used it for one partnership -- but some worries over legal issues caused a change in strategy for the second Mooney partnership.

Many pilots will argue strongly for limited liability corporations (LLC) and indeed, AOPA seems to recommend it highly:

“Choices for Aircraft Ownership” (Arthur, May 1998)

In getting setup I’d make use of AOPA resources first, paying close attention to tax issues before purchase of the aircraft. At some point AOPA will recommend talking to an attorney in your home state, but our experience is that even aviation attorneys are more likely to be familiar with charter or fractional ownership structures than a partnership among owner-pilots. In addition, the aviation attorney is likely to have less tax expertise than you’d like – and you’ll be lucky if your normal accountant even knows what an FBO is, let alone proper accruals towards a mid-time top overhaul. So, it’s a good idea to have someone in the partnership willing to investigate state corporation laws and both federal and state tax law.

In our last partnership, one of the partners paid careful attention to the structure to set up a lease corporation. It involved getting a resale certificate for leasing the aircraft and had the following advantages:

  • limited liability, if corporation organization structure and rules are followed closely
  • the ability to sell the corporation to in-state residents without transfer of the aircraft (and resulting sales tax)
  • deferral of sales or use tax by paying sales tax on the hourly leasing of the aircraft – and gaining credits from sales taxes paid on service and repairs


You’ll typically be registering your corporation via the state’s Secretary of State page, which should have both rules for different types of corporations and the necessary forms. An example follows:

State of Washington/Secretary of State

Any organizational structure will require an employer identification number from the U.S. Department of the Treasury; an annual report listing officers and official address; and an annual renewal fee that was $58 in Washington for 2001. Your bank will require the employer identification number for checking/savings accounts.

To obtain an employer ID (in effect the corporation’s Social Security or Tax ID number), you’ll be going to the U.S. Internal Revenue Service (IRS) site. Go here to get a Form SS-4:
“Online Application - Form SS-4, Employer Identification Number (EIN)”,,id=102767,00.html

or you can also call (800) 829-1040 to get the form.

The title transfer should be set up to move the aircraft directly into the corporation. AOPA will handle this for $45 or you. You can also do it directly with Aircraft Registration Branch in Oklahoma City, OK:

“Civil Aircraft Registry”

Each state’s laws are different, so this requires detailed understanding of the process before purchasing an aircraft. Within the state of Washington upon transfer, a “Declaration of Use Tax” form should be filed with the state. This acknowledges the transfer of the owned aircraft into the corporation. At the same time a “Resale Certificate” should be obtained from the WA Department of Revenue. This sets the corporation up for sales tax paid on lease revenues. They can be paid annually and are due in mid-January.

Care should be taken to note in the by-laws that lease rates are dry, so that you’re not paying double taxes on fuel.

There are a number of other steps for setting up the corporation that you’ll want to follow, including by-laws and annual meeting documentation. But this is a tool for getting started.


Revision: 10/28/2010