Aircraft Purchase, Ownership and Operation: Protecting the Interests of a Family Business Owner – Part 3As noted in Part 1 of this series, Federal Aviation Administration (FAA) rules govern the ownership, operation and use of private aircraft. Most private aircraft are operated under Part 91 or Part 135 of the Federal Aviation Regulations. For reasons discussed below, it is imperative for the family business owner of a private aircraft to determine whether the Part 91 or Part 135 rules govern the owner’s operation of the aircraft and to strictly comply with such rules at all times.

The Part 91 rules govern the operation of a private aircraft for non-commercial purposes. Examples of Part 91 operation of a private aircraft would be flights taken by employees on aircraft owned by their employer for business purposes; personal flights taken by the owner of the aircraft; flights taken by the owner’s family members or friends; and other similar flights that do not involve any charge or fee paid by the passengers for the value or costs associated with the flight. The Part 91 rules are generally less restrictive and less costly from a compliance standpoint than the Part 135 rules, which are discussed below. In most cases, the owner of a private aircraft will structure the ownership, operation and use of the aircraft to fall within the Part 91 rules.

The Part 135 rules govern the operation of a private aircraft for “compensation or for hire.” For example, if the owner of a private aircraft takes a group of friends on a ski trip and charges each passenger a proportionate share of the value or costs associated with the flight, the flight is considered as one for compensation or hire and the owner must comply with the Part 135 rules. Similarly, if the business owner of an aircraft makes the aircraft and pilot(s) available to other businesses to use, for a fee or charge, the business owner must comply with the Part 135 rules with certain very limited exceptions. Charter operations involving a private aircraft are governed by the Part 135 rules.

The Part 135 rules for operating a private aircraft are more stringent than the Part 91 rules, involve additional expense for compliance, maintenance and pilot training and certification, and require that the owner-operator of the aircraft hold a Part 135 certificate issued by the FAA. Obtaining a Part 135 certificate involves significant expense and can take six months or longer. The operation of a private aircraft under Part 135 also requires that the operator report and pay the Federal Excise Tax of 7.5 percent on the amount of compensation received by the owner for any flight operated under Part 135.

The failure to comply with the Part 91 or Part 135 rules, as applicable, can have catastrophic consequences for the owner of a private aircraft. For example, if the owner mistakenly believes that the operation of the aircraft is governed under the Part 91 rules when in fact the Part 135 rules apply to the owner’s operation of the aircraft, the insurance coverage for the aircraft may be voided and the owner may be subject to civil penalties of up to $25,000 for each violation of the applicable rules. For these and other reasons, an owner of private aircraft should consult with legal counsel experienced with the Federal Aviation Regulations governing the ownership, operation and use of private aircraft.

Is Your Family Business Getting Political? 5 Things to Consider <i>Before</i> Donating to Political Candidates and Political OrganizationsThe First Amendment broadly protects political speech, and every citizen has a fundamental right to participate in the political process, including making contributions to political candidates and political organizations. However, like any fundamental right, political speech has its limits. Political contributions are heavily regulated by governments and public perception, and you and your family business should consider the following before making a political contribution.

1. It is better to ask for permission than forgiveness.

Campaign finance laws (laws that regulate and restrict political contributions) vary greatly by jurisdiction, and restrictions on political giving can come in many different shapes and sizes. In particular, donors should always be mindful of whether there are applicable contribution limits, prohibitions or disclosure requirements when making a contribution. Penalties for violating these rules can be very significant, including potentially hefty fines and, in rare instances, incarceration. Depending on the circumstances, making a political contribution can even result in canceling a government contract or making a contractor ineligible to bid on government contracts in some jurisdictions. Accordingly, it is critical that donors do their own due diligence or seek counsel to confirm that their political contributions are compliant with the applicable rules before making a contribution.

Also, note that you should not rely solely on a candidate’s or fundraiser’s word that a proposed contribution is OK. They do not represent you and do not always know how the rules apply specifically to you or your business.

2. You are the company you keep.

When you contribute to a candidate or a political organization, you are expressly endorsing them. You may be supporting them for a very specific reason, but you are generally associating yourself and potentially your business with that candidate or organization when you make a contribution. Accordingly, it is critical to seriously vet all political contributions, especially if it is a political organization.

Further, the world of campaign finance is generally very transparent. Despite what you may have heard about “dark money” in politics, there are very few options, if any, to effectively participate in elections confidentially. You should assume that any political contribution that you make will either be reported in a public filing or will otherwise be discoverable by the general public and the media. Accordingly, if you are concerned about being associated with a candidate or an organization – think twice before you contribute.

3. Never reimburse a political contribution.

Although political laws vary from jurisdiction to jurisdiction, one rule is consistent everywhere – it is illegal for an individual or entity to reimburse another individual or entity for making a contribution to a political candidate. Not only is it a violation of campaign finance laws, it is a felony in most jurisdictions. While most campaign finance violations will not result in jail time, this is one violation that could. Simply put, never pay or reimburse anyone for making a political contribution.

4. Give with no strings attached.

Never make a request of a candidate or officeholder when making a political contribution. Similarly, never mention a political contribution when making a request to a candidate or officeholder. Political giving and lobbying requests should not be made contemporaneously. Not only is it frowned upon and makes most candidates and officeholders uncomfortable, it could be a crime depending on the circumstances. There is a time for lobbying and making requests, and there is a time for fundraising. Those times are never the same.

5. Elections can affect you and your business.

Participating in elections and supporting candidates makes a difference. Not only is it a fundamental right, but supporting certain candidates and political organizations can often be in the best interest of both you as an individual and your business. There are risks with everything you do in life, but the risks involved with making political contributions can be mitigated.

Aircraft Purchase, Ownership and Operation: Protecting the Interests of a Family Business Owner – Part 1 Access to private aircraft can provide productivity and other benefits for a family-operated business and improve the quality of life for the business owner and his family. However, purchasing, owning and operating a private aircraft requires careful consideration of a number of business, legal, tax and regulatory issues. These issues make it imperative that a small business owner consult with legal and tax counsel to ensure that the owner’s interests are properly represented in the purchase of the aircraft, that the owner purchases and operates the aircraft in a tax-advantaged structure, and that the owner operates the aircraft in strict accordance with the rules and regulations of the Federal Aviation Administration (FAA). This blog post provides an overview of several of the numerous issues that should be considered when purchasing, owning and operating a private aircraft and will be followed by additional blog posts providing a more detailed discussion on each of the issues raised below.

Initial Purchase of Aircraft

The first step in purchasing a private aircraft is often the preparation of a letter of intent (LOI) or other similar non-binding document setting forth the proposed terms for the purchase and sale of the aircraft.  The LOI is typically prepared by the purchaser and presented to the seller for consideration. Once the parties reach agreement on the general terms for the purchase and sale of the aircraft, the LOI is signed and legal counsel for the parties will prepare the aircraft purchase agreement (APA). The APA is particularly important to the purchaser as it provides the purchaser with rights to perform a thorough pre-purchase inspection and to perform other due diligence to ensure that the aircraft is in the condition represented by the seller or the seller’s broker.

Compliance with FAA Regulatory Requirements (Parts 91 and 135 Operations)

Privately owned aircraft are operated under either Part 91 or Part 135 of the FAA rules. Part 91 governs the operation of private aircraft for non-commercial, private carriage uses (e.g., flights for business and personal and family flights). Part 135 governs the use of private aircraft for charter flights and other commercial uses. Failure to comply with the FAA rules for the operation of a private aircraft can result in significant fines and liabilities, including the loss of insurance coverage for the owner and operator of the aircraft.

Liability of Owner/Operator of Aircraft

Owning and operating a private aircraft have the potential to expose an owner/operator to catastrophic loss. Many owners and operators are surprised to learn that they can be held liable for incidents of loss even when they are not piloting—or even onboard—the aircraft. Most risks associated with the ownership and operation of a private aircraft are not mitigated simply by titling the aircraft in the name of a separate legal entity, such as a corporation or limited liability company. Rather, the FAA extends legal and regulatory responsibility for flight operations to anyone who has “operational control” of the aircraft.

Sharing an Aircraft

Owners of private aircraft may enter into various types of arrangements to share ownership and/or use of an aircraft with others. Examples of such arrangements are leases, time sharing agreements, joint ownership, and charters. Each arrangement presents certain FAA regulatory compliance issues, risk allocation issues, and federal and state tax issues. This is true irrespective of whether the owner is sharing the aircraft with related parties (e.g., a subsidiary company, family members, etc.).

This is Part 1 in a series of blog posts by Wood Herren addressing various issues pertaining to the purchase, ownership and operation of private aircraft by family business owners. Stay tuned for Wood’s next post in this series, which will address other protections that an aircraft purchase agreement may provide a purchaser.