How to Limit your Liability And understanding Co-ownerships

How to Limit your Liability As a flying enthusiast, you will be faced with many important decisions, including how to protect your personal and business assets from lawsuits. While many countries allow the typical structures of sole-proprietorship, partnership, or corporation for business ownership, Americans have the ability to form a limited liability holding company.

What is a Limited Liability Co.   A limited liability company (LLC) exists as a separate entity and blends elements of partnership and corporate structures where owners are called members not partners or shareholders.   The number of members are unlimited and may be individuals, corporations, or other LLC's.   A LLC Members cannot be held personally liable for the companies liabilities or debts unless they have signed a personal guarantee.

What is a holding company?   A holding company is a company that doesn’t have any operations, activities, or other active business.   Instead, it owns it stockholders assets and assumes all the liability of ownership. These assets can be aircraft, limited partnerships, or virtually anything else that has value.

Purpose   Protecting personal assets by Limiting your liability to the value of the aircraft.   Let the holding company, as owner, assume the risk when it is time to sell the aircraft.   Provides future partners a holding company to invest in a state-of-the-art aircraft at a fraction of the cost.   Allows Members to transfer their ownership as easily as transferring a share of stock.

Incorporation   All states are not equal!   Why Incorporate in Nevada?   Nevada, like the state of Delaware, is well known as a corporate haven.   Hard to pierce the corporate veil and sue a stockholders, members, or officers.   No Corporate Income Tax   No Taxes on Corporate Shares

Why Incorporate in Nevada?   No Franchise Tax   $ to $ total annual expenses   Nevada corporations may purchase, hold, sell or transfer shares of its own stock.   Nevada corporations may issue stock for personal property like aircraft.   No Estate Tax   Competitive Sales and Property Tax Rates

Why Incorporate in Nevada?...2   Nevada's Business Court minimizes the time, cost and risks of commercial litigation by:   Early, comprehensive case management   Active judicial participation in settlement   Priority for hearing settings to avoid business disruption   Predictability of legal decisions in commercial matters

How to incorporate in Nevada.   Required documents:   Articles of Incorporation filed with the Secretary of State. Cost $   Business License. Cost $ annually.   List of Officers. Cost $ annually.   A Nevada Resident Registered Agent is required if you are not a resident. Cost $89.00 to $ annually.

How to incorporate in Nevada....2   Officers/Directors Information   Minimum number: Corporations are required to have one or more directors as well as a president, secretary and treasurer.   Director qualifications: Directors must be at least 18 years old.   Appearance in articles: Required. Directors' names and addresses must appear in the Articles of Incorporation.

How to incorporate in Nevada...3   Annual Reports   Corporations must file an Annual List of Officers, Directors and Registered Agent and Business License Application with the Nevada Secretary of State on or before the last day of the month that marks the anniversary of incorporation as well as federal tax returns.   A valid Nevada corporate address with mail forwarding must be acquired if not a resident. Cost $ to $ plus postage.

Potential Alternatives to setting up an LLC Holding company yourself.   Do an online search and you will discover there are hundreds of companies like LegalZoom that will do everything from being the registered agent to scanning your mail and forwarding it to you electronically.   The difficult part only becomes finding the reputable service for the cheapest price.   Or buy stock in an existing holding company sharing the cost with others who use and control their own aircraft separately from you.

Recommendation   Transfer, in exchange for stock, all assets that have liability associated with there use into a Limited Liability Holding Corporation.   This will protect your companies, chapters, members and your personal assets.   Consider it very inexpensive yearly insurance worth exactly what you are worth today and in the future.

An Alternative Solution   Rotorcraft Partners LLC Co is, or soon will be, a Nevada bases Limited Liability Holding company created to hold title in individually owned or co-owned aircraft protecting our members personal assets.   Rotorcraft Partners LLC Co purchases your aircraft in exchange for stock then creates an exclusive use agreement with you or all your co-owners of the aircraft allowing them the same possession and control as if they still owned the aircraft.

Rotorcraft Partners LLC Co.   Each Aircraft has a stand alone agreement which creates a limited partnership with the owner or co-owners of each aircraft separately from the other aircraft the company owns.   Rotorcraft Partners LLC Co allows all the owners to share the cost, labor and hassle of incorporating a Limited Liability Company on their own.

Ownership Structure   Example: 3 aircraft owned by the holding Co with 2 limited partnerships, 7 members & 54 co-owners.

To limit liability all Aircraft are owned by LLC Co.   This aircraft is for Mr X's exclusive use with 100% possession, use and control. He also co- owns another aircraft with a corporation as his partner.

Multi-Chapter and partner owned Aircraft.   This co-owned aircraft has 4 entities that are members of Rotorcraft Partners LLC Co.   Chapter 31 has 16 members, Chapter 2 has 28 members and XYZ LLC Co. has 10 members for a total of 54 co-owners/ users of this aircraft.

Is there a need for co-own aircraft?   If it is hard for you to get gyroplane training as it is in CA then yes!   Our sports problem is we often have willing gyroplane CFI's however, our market is just too small for them to afford to buy a $30K+ training gyroplane and make a living for their family so most new and old members have to travel. Each chapter could be a point of training.   We can make it profitable for anyone to become a CFI if the Chapters or PRA co-owned a trainer for local or traveling instructors at a reduced usage rate to all co- owners, only paying for the instructors time.

We can make it affordable for young families to play again.   In the old days you could build a gyrocoper for only a few hundred dollars. Today, for a state-of-the-art gyroplane it cost $15K for a true ultralight, $18K to $25.K for a single and from $30K to over $100K for a two-place where motorcycles and watercraft cost less.   By being able to setup up LLC co-ownership for your chapter members you can advertize for new members to co-own the same model aircraft other members wish to own with 4 gyroplane $15K = $3,750. $20K = $5,000. $100K = $25,000. ea..

How do we co-own, share and pay for the use of experiential Aircraft?   Let's examine the purchase, use, and billing of one of our co-owned example Aircraft N2279D assume it will be a two- place gyroplane and not built yet.

Co-owners may own and fly Experimental aircraft.   Chapter 31 is located in CA. Chapter 2 is located in Utah and they decided to share and build a two-place trainer/cross-country gyroplane. This will allow all of their members to be CO- OWNERS.   Chapter 31 has the engine, Chapter 2 has the avionics and blades. Both chapters advertized for new members & investors/ partners. Mr A is a member of Chapter 31 and has paid for ½ of the frame kit and Chapter 2's ad found a new member who owns an LLC and will loan us the money to pay for the rest of the frame kit.

How can you pay back investors?   All four partners are loaning each other either money or material, parts & avionics to acquire a completed aircraft for the partners and co-owners mutual benefit.   Remember, there are 54 co-owners that belong to the Chapters and LLC and only 4 partners that we all owe for loaning the other co-owners the money to complete the aircraft.   All co-owners including partners will repay themselves and expenses with an hourly usage charge much like an FBO leaseback.

Co-owners Pay for what they use.   The hourly usage charge is to assure that the co-owner who flies the most pays the most of:   Loans, and loan repayment to partners   Hanger, insurance, expenses, maintenance, engine reserves, fuel, oil, and other operating costs.   No commercial use assures that co-owners only pays the actual cost at an hourly low rate as co-owners are paying only for loans and expenses as they use the aircraft.

What's the yearly Cost?   Example of yearly fixed costs and loan payments: 1) 1)$5, = Aircraft ($36K / 7 yrs) for partner loans. 2) 2)$6, = Insurance 3) 3)$ = Storage Enclosed Trailer ($3.5K / 7 yrs) 4) 4)$ = Annual Inspection 5) 5)$1, = Parts maintenance 6) 6)$ = Taxes 7) 7)$14, = Total Annual Fix cost

The more it flies the cheaper the rate.   Total Annual Fix cost $14, is then divided by 12 months = $1, Fixed costs per month.   If the aircraft files only:   4 hours per day on weekends or 8 hours for 4 weeks equals 32 hours per month = $37.67 per hour.   50 hours per month = $24.11 per hour.   If flown 4 hrs per day for 120 hrs = $10.04 per hour.   It makes sense to co-own the aircraft with PRA or other Chapters as the more it files the cheaper it is for all.

Once the partners are paid back the price goes down again.   Total Annual Fix cost are reduced to $8, divided by 12 months = $ Fixed costs per month.   If the aircraft files only:   4 hours per day on weekends or 8 hours for 4 weeks equals 32 hours per month = $22.97 per hour.   50 hours per month = $14.70 per hour.   If flown 4 hrs per day for 120 hrs = $6.12 per hour.   It should be noted that these are dry cost meaning without fuel and oil costs.

How are the investor partners repaid?   The user rates will vary depending on the number hours flown and the number of years the partner co- owners request to be paid back in.   The user charges are collected after each flight. Funds are then sent to the accounting partner/ co-owner who pays the monthly expenses and then distributes the excess to the partners each month to repay them for their loans.   If the funds collected are less than expenses the partners will loan us the money by paying the expenses adding it to the amount we owe them.

How are the investor partners repaid?...2   For this example let's assume the ownership is:   Chapter 31 = 22% Contributed engine   Mr A = 32% Contributed 50% gyroplane kit   Chapter 2 = 14% Contributed blades, & avionics   XYZ LLC co = 32% Contributed cash   Therefore each month 22% of loan and excess will be paid to Chapter 31, 32% to Mr A, 14% to Chapter 2, and 32% paid to XYZ LLC co until they are paid in full.   Once paid all co-owner's rate per hour will be reduced.

How is possession shared.   Each Partner/ Investor co-owner has the right to possession but NOT exclusive use of the Aircraft for the same percentage of the days in a year, less maintenance down time, as the Partner's beginning Loan balance.   Example 365 days less 7 days maintenance down time would mean in this case Chapter 22% = 78 days, Mr 32% = 114 days, Chapter 14% = 50 days, ZYZ 32% = 114 days.   All co-owners would be able to fly it no matter where it was located including all fly-ins.

What this can mean for PRA Chapters and Co-Ownerships.   An LLC is a powerful tool that could be used to rapidly expand PRA and or your Chapter allowing them to purchase, build, or donate a aircraft into the Limited Liability Co as a separate entity to hold title, thereby limiting your risk to only the amount you have invested in the aircraft.   Having an inexpensive gyroplane that all members can fly is a major benefit and inducement to join in the fun and provides young families an inexpensive way to earn their wings and enjoy the thrill of flight.

What this can means for PRA Chapters and Co-Ownerships...2   Using the co-owned aircraft's availability and training to new members a marketing advertizing campaign to recruit new co-owners, investors, PRA and or Chapter members can be used to increase your membership dramatically.   You can create limited partnerships between current and new chapter members to purchase aircraft models they wish to own independently from the Chapter at a fraction of the cost making it affordable to more members.

What this can means for PRA Chapters and Co-Ownerships...3   Shared ownership with other Chapters or PRA the cost per hours would go down with the increase usage and it could be moved around the country with states where it snows, and not being used anyway, using it in the warmer months and year round good weather states having possession during the winter months.

What can you do?   You can encourage PRA and or your Chapter to become a co-owner of Chapter 31's two- place trainer providing a training aircraft across the country to all our members at a reduced cost.   You can become the investor/ partner providing the funds for your Chapter to co-own an aircraft bringing new people into the sport.   You can become a co-owner with other members of your chapter who wish to own the same model gyroplane.