ATTN CFI's in FL - Inc. or LLC?
#1
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ATTN CFI's in FL - Inc. or LLC?
I just had a paragraph and a half typed out and the internet browser collapsed! Son of a $^&#@ !!!
In short, I'm a part time CFI looking to set up a corporation or LLC for some legal and tax benefits.
What did all of you guys do?
Thanks is advance for all your advice and information.
In short, I'm a part time CFI looking to set up a corporation or LLC for some legal and tax benefits.
What did all of you guys do?
Thanks is advance for all your advice and information.
#2
I have used an LLC for other business activities. If you have assets, it is probably a good idea, but make sure you understand how taxes and fees work. It might make more sense just to get an umbrella insurance policy.
It varies by state...CA for example has an $800 annual base tax/fee which is in addition to your actual taxes (this has always been on the books, but was a legal grey area...it will be enforced for 2009 onwards) .For most business activities $800 would buy a lot of insurance, but perhaps not enough in aviation.
An regular corporation is a separate legal entity, which files it's own taxes. An LLC is similar, but in the case of a small business it has less paperwork requirements, and the income/loss gets passed directly through to the owner(s), who report it on their personal taxes. As a CFI, you probably want an LLC for simplicity.
Considering some recent changes in CA, I think an LLC is only economical for a full-time business, not a part-time professional service gig like flight instructing. It may be different in your state, research what the overhead admin, taxes, and fees are.
It varies by state...CA for example has an $800 annual base tax/fee which is in addition to your actual taxes (this has always been on the books, but was a legal grey area...it will be enforced for 2009 onwards) .For most business activities $800 would buy a lot of insurance, but perhaps not enough in aviation.
An regular corporation is a separate legal entity, which files it's own taxes. An LLC is similar, but in the case of a small business it has less paperwork requirements, and the income/loss gets passed directly through to the owner(s), who report it on their personal taxes. As a CFI, you probably want an LLC for simplicity.
Considering some recent changes in CA, I think an LLC is only economical for a full-time business, not a part-time professional service gig like flight instructing. It may be different in your state, research what the overhead admin, taxes, and fees are.
#3
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Joined APC: Nov 2008
Posts: 826
For example, lots of people think that setting up one of these will limit their personal liability in case of an accident that is their fault. It will not, at least not in any state in the US I'm aware of.
Best advice - get together with a professional who can explain what these entities can and cannot do for you.
#4
An LLC (and a corporation) will generally do that, in that it can limit the liability to the LLC assets (airplane, office furniture, etc) and protect your personal assets (homes, cars, savings, etc). That is why LLC's exist...
The level of protection and the details vary dramatically by state, and an LLC is not bulletproof...it has to be setup and operated properly to work. You will definitely need legal advice to set one up. If you do-it-yourself, you will probably screw something up, which a plaintiff's attorney could use to invalidate the LLC.
#5
Gets Weekends Off
Joined APC: Nov 2008
Posts: 826
Like I said. This is very misunderstood.
An LLC will fairly effectively protect your personal assets from contractual obligations if you don't sign a personal guaranty.
An LLC will also fairly effectively protect your personal assets from others' tort liability - a co-owners, an employee's.
But an LLC does not protect your personal assets from your own tort liabilities. Period.
Example:
Two people buy an airplane together. They set up a corporation or LLC that owns the airplane. Owner A negligently crashes it and injures a passenger.
Owner B's personal assets are probably not at risk. The LLC (with some exceptions) protects B's personal assets from A's liability for negligence.
But the existence of the LLC does not protect A's personal assets from his liability for his own negligence.
That is not something that an LLC, LLP, corporation or other form of limited liability entity does in any state in the US that I'm aware of. They are not there to protect someone for responsibility for his own negligent or wrongful acts. That's what insurance is for.
In the CFI context:
Q: If I crash an airplane with a student and I'm teaching through an LLC, will the LLC protect my personal assets?
A: No.
An LLC will fairly effectively protect your personal assets from contractual obligations if you don't sign a personal guaranty.
An LLC will also fairly effectively protect your personal assets from others' tort liability - a co-owners, an employee's.
But an LLC does not protect your personal assets from your own tort liabilities. Period.
Example:
Two people buy an airplane together. They set up a corporation or LLC that owns the airplane. Owner A negligently crashes it and injures a passenger.
Owner B's personal assets are probably not at risk. The LLC (with some exceptions) protects B's personal assets from A's liability for negligence.
But the existence of the LLC does not protect A's personal assets from his liability for his own negligence.
That is not something that an LLC, LLP, corporation or other form of limited liability entity does in any state in the US that I'm aware of. They are not there to protect someone for responsibility for his own negligent or wrongful acts. That's what insurance is for.
In the CFI context:
Q: If I crash an airplane with a student and I'm teaching through an LLC, will the LLC protect my personal assets?
A: No.
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