partnership vs. flying club

jaymark6655

jaymark6655

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jaymark6655
So what is the difference, especially if the club is an equity based membership?

Is there any taxes on money set in a reserve account for maintenance on a not-for-profit flying club? Same question for an LLC partnership.
 
Partnerships are usually a longer term commitment to an aircraft between 2-3 owners. Occasionally a 4 way split. Partnerships can also have asymmetric ownership. e.g One partner owns half and others own smaller fractions with smaller cost obligations. Partners are owners with direct responsibility for costs, taxes, etc.

Clubs frequently have more than one plane, with larger base of pilot membership. Clubs commonly have a rental fee that feeds a reserve fund for expenses.

These are generalities.

Fly a handful of times a year or need access to various aircraft, then Club is a nice solution. What to fly one plane more frequently, and be a principle stakeholder, then partnership might make more sense.
 
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If a club is an equity club, in financial terms it’s equivalent to a partnership. Tax implications will vary by state.

Insurance will often treat a partnership of more than 5 people as a club, regardless of how it’s organized.


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Depending on the structure (LLC, Inc., general partnership, etc.), there may be no legal difference between a club and a "partnership." If the club is a true "equity" club, the only distinction between that and a "partnership" (whether true partnership, LLC or Inc.) may be semantics and operational.
 
Sounds like what I was thinking is sort of confirmed, no difference other than what you want to call yourself. I guess as a "club" you cannot hold yourself out for flight instruction (advertise) or use it for other commercial operations, but a co-ownership/partnership could rent out and sell themselves as a flight instructor as long as the owner doing it was appropriately rated. I am not in a position to worry about the difference in this case, so either one seems like a good deal if set up appropriately.
 
jaymark6655 said:
Sounds like what I was thinking is sort of confirmed, no difference other than what you want to call yourself. I guess as a "club" you cannot hold yourself out for flight instruction (advertise) or use it for other commercial operations, but a co-ownership/partnership could rent out and sell themselves as a flight instructor as long as the owner doing it was appropriately rated. I am not in a position to worry about the difference in this case, so either one seems like a good deal if set up appropriately.
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What makes you think a "club" can't advertise instruction or conduct commercial operations, assuming the various regulatory requirements (91/119/135 etc.) are met?
 
bradg33 said:
What makes you think a "club" can't advertise instruction or conduct commercial operations, assuming the various regulatory requirements (91/119/135 etc.) are met?
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5190.6B 10.6 (a) FAA policy emphasizes three points:

Flying clubs should at no time hold themselves out as fixed based operators, flight schools or as businesses offering services to the general public.
Certified Flying Instructors (CFI) and mechanics should be permitted to receive either monetary compensation or discounted /waived regular club member dues but not both.
Flying clubs must not indicate in any form of marketing and/or communications that they are a business where people can learn to fly.
 
No, but they can advertise that there are club-approved instructors who can give instruction in club aircraft.

The distinction is (partly) that they can’t say “Hire one of our instructors.” The club member must hire the instructor on their own, and has to pay them directly.


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jaymark6655 said:
5190.6B 10.6 (a) FAA policy emphasizes three points:

Flying clubs should at no time hold themselves out as fixed based operators, flight schools or as businesses offering services to the general public.
Certified Flying Instructors (CFI) and mechanics should be permitted to receive either monetary compensation or discounted /waived regular club member dues but not both.
Flying clubs must not indicate in any form of marketing and/or communications that they are a business where people can learn to fly.
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That's not really a regulatory thing, it's more of an issue between the club and the airport that is leasing them space. I don't think the FAA can enforce those rules directly against the flying club, they can just tell the airport that it needs to crack down on the club running a commercial operation at the airport. In other words, it's more of a "land use" thing than it is a "flying clubs can only do certain things" kind of deal. It's also one that's routinely violated.
 
Another reason for the term "club" can be a federal tax thing.....

@texasag93 can explain it better since he recently researched it.... but for our group of 16 co-owners and 2 aircraft, it was more advantageous to label ourselves as a club.
 
In a partnership you can leave your headset in the plane without having to worry who the next guy is.
 
bradg33 said:
That's not really a regulatory thing, it's more of an issue between the club and the airport that is leasing them space. I don't think the FAA can enforce those rules directly against the flying club, they can just tell the airport that it needs to crack down on the club running a commercial operation at the airport. In other words, it's more of a "land use" thing than it is a "flying clubs can only do certain things" kind of deal. It's also one that's routinely violated.
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From what I was told, the airport will kick you off the field or risk losing federal funding.
 
whomever is telling you these stuffs is wrong.
 
Those definitions in the FAA order serve to distinguish a 'flying club' from a rental business or flight-school. The reason this is important is because an airport sponsor can impose 'uniform commercial standards' on an aviation business but has to treat a 'flying club' as 'individual user' who has access to the airport to the same extent as every other 'individual user'. An aviation business may have to pay gross receipts taxes to the airport, provide proof of commercial general liability insurance, rent a set square footage from the airport, provide a bathroom etc.

There are certainly outfits that run under the banner of 'flying club' which are thinly disguised rental operations. Things to look for are non-voting membership interests and an 'owner' who controls everything. If during a compliance inspection, an airport sponsor was found to allow a rental business to operate as a 'flying club', it would create a situation where they were guilty of not treating commercial tenants in a uniform manner. I doubt this would cause an airport to 'lose federal funding'. It would be noted as a deficiency and the airport would have to provide a plan of how to address the issue.

Other than that, the FAA doesn't care all that much whether you call 10 folks who own a plane a partnership or a club. As long as it is a closed business that only benefits its members, it is treated as an individual airport user.
 
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Cost depends on how many hours you fly. Fly greater than 50 hrs, and happy to do so in the same plane, partnership is better. Otherwise, flying club.
 
Our club, Metro Flyers, is considered a social club by the feds. We depreciated our airplanes and carry that amount forward on our returns.

We are not considered a non profit or a charity.

We spend about what we take in, so there is no real profit.

We pay sales tax as we cannot get a sales tax exemption.
 
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1) Check with your state aeronautics department and your state tax collectors. Rules vary by state, including definition of a "flying club," sales tax applicability and exempt purchases, and filing requirements.
2) Technically a "partnership" does not have limited liability. You want a corporation, and you want the corporation to carry insurance including the members as named insureds.
2) At the federal level, a nonprofit C-corp flying club fits as a 501(c)7. Rules for filing tax returns vary with the $$ size of the operation. Not sure if an LLC with its simpler tax filing requirements can be a nonprofit. Your activity may be considered to be a hobby business where expenses are deductible only to the extent of income but income above expenses is taxable.
3) Check with your airport manager and check any hangar leases for rules pertaining to partnerships and clubs.

You'll probably need both a lawyer and a CPA to get things set up correctly.
 
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