Your client calls to say she is buying a plane to use in her business and for vacation trips to the Caribbean. She wants your help in negotiating the contract and closing the deal. Considering the potential for liability, you are thinking of setting up a separate sole-purpose LLC to own and operate the aircraft.
Tread carefully. This is a complex regulatory area where the rules can be counterintuitive and mutually inconsistent.
A company whose sole business is to operate an aircraft can easily run afoul of FAA rules, because it can be found to be in the business of providing air transportation for compensation – just like an airline. No profit motive is required.
And, just like airlines, a company that provides air transportation for compensation is subject to extensive safety, security and economic regulation.
Without careful planning, the use of a sole-purpose LLC could inadvertently expose your client to violations of FAA rules. Worse, her insurer might deny claims if she is operating in violation of federal safety laws. There also could be a claim by the Internal Revenue Service for uncollected passenger taxes that apply to commercial air transportation, plus interest and penalties.