Incorporating a partnership

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AntiNakedMan
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Incorporating a partnership

Post by AntiNakedMan »

Hi all,

I am considering purchasing a plane with 2 partners, and renting it out to other licenced pilots. We are discussing creating a corporation to limit our liability; has anyone else done this? My understanding of corporate law is weak, but I believe that a corporation has all the same rights in law as a "person" and so can own an aircraft, rent property, etc.

I appreciate any insights. Thanks!

Anti
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photofly
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Re: Incorporating a partnership

Post by photofly »

That is correct. If your corporation is operated on a commercial basis (for profit) then you will have to file accounts with the CRA. Also any penalties for infractions will be assessed by TC at five times the rate you'd have to pay if the aircraft is registered to individuals.

You should probably take professional advice from an accountant: for instance if you rent out the aircraft to others but you fail to charge yourselves (and pay into the corporation) to rent the aircraft at the same rate, there may be a taxable benefit to you that you have to declare on your own tax return.
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TeePeeCreeper
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Re: Incorporating a partnership

Post by TeePeeCreeper »

I’ve done it in the past and if I had a chance to do it again I would run in the opposite direction.

If you’re keen on moving forward with it I would strongly suggest having an aviation knowledgeable corporate lawyer and an accountant who is also aviation savy.

All the best,
TPC
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Vertigo8
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Re: Incorporating a partnership

Post by Vertigo8 »

Would you even be insurable for the venture with the way the industry is going?
3 partners, sounds like a sure way for it to fail, where and what market are you after?
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cncpc
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Re: Incorporating a partnership

Post by cncpc »

Just a question of Photofly's comment. What is the source of your statement that fines for corporations are five times those for individuals? I've not come across that before.
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photofly
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Re: Incorporating a partnership

Post by photofly »

Schedule II to CAR 103.08.
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iflyforpie
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Re: Incorporating a partnership

Post by iflyforpie »

Those are penalty maximums. Not what infractions will be necessarily charged at.

While it does leave you open to risk, surely a judge or tribunal will take into account a corporation for the sole purpose of an aircraft partnership having little risk to the general public in relation to an airline business which represents a far greater risk and is more financially capable (making some of those charges seem a joke).

Maybe there is some case law on the subject. Two friends quit flying because of a $25,000 fine where there data plate mounting didn’t meet the requirements of 201.01 (2) and they forgot to notify the minister in writing (201.01 (3) ) of the inability of the data plate to be mounted that way.
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photofly
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Re: Incorporating a partnership

Post by photofly »

Infractions are charged according to TC guidelines, based on mitigating and aggravating circumstances.
There are plenty of examples of both corporate and individual fines, here.

non-corporate:
https://www.tc.gc.ca/eng/civilaviation/ ... u-3008.htm

corporate:
https://www.tc.gc.ca/eng/civilaviation/ ... nu-680.htm

The corporate ones are much, much, higher, even for small "numbered" corporations.
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Alex335
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Re: Incorporating a partnership

Post by Alex335 »

I used a lawyer to handle the incorporation paperwork for my aircraft. Much easier and didn’t cost much. Lots of people also do it online to save a few bucks since it’s only 300-500 to DIY it, but having a lawyer do it only cost 1300 tax included.

It’s well worth it to own an aircraft through a company since it makes transferring shares much simpler, and doesn’t require a new aircraft registration each time owners buy/sell shares since the registration is in 12345678 Ontario Inc’s name. So transferring shares is done all via the company side of things using the company shares.

I wouldn’t worry about the tax implications either since your expenses will far surpass any rental fees collected. Will have all sorts of receipts/invoices from hangar, maintenance, oil, fuel, and annual inspection to cancel out any rental funds with ease. Most likely every year will be a loss, if eventually profit is made can use previous tax years losses to offset current gains. Unless renting hundreds of hours out each year at full market rate won’t need to worry about the corporation being profitable, and even if it was would only need to pay the corporate tax since the profit is not being drawn by an individual.
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Bede
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Re: Incorporating a partnership

Post by Bede »

iflyforpie wrote: Sun Nov 03, 2019 4:01 pm Maybe there is some case law on the subject.
Yes. The Wyer case.
iflyforpie wrote: Sun Nov 03, 2019 4:01 pm Two friends quit flying because of a $25,000 fine where there data plate mounting didn’t meet the requirements of 201.01 (2) and they forgot to notify the minister in writing (201.01 (3) ) of the inability of the data plate to be mounted that way.
I guess it wasn't their first offense? And they didn't appeal to the TATC? Seems a bit far fetched.
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broken_slinky
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Re: Incorporating a partnership

Post by broken_slinky »

Alex335 wrote: Tue Nov 19, 2019 11:54 pmIt’s well worth it to own an aircraft through a company since it makes transferring shares much simpler, and doesn’t require a new aircraft registration each time owners buy/sell shares since the registration is in 12345678 Ontario Inc’s name. So transferring shares is done all via the company side of things using the company shares.
As Alex335 said, incorporating the aircraft ownership is a clean way to do it and doesn't cost a lot. Obviously you will need to abide by CRA rules pertaining to a corporation but the benefits outweigh the negatives.
The major issue is aircraft rental. As soon as you go down that path, insurance, maintenance and overall ownership costs are going to go up. Someone correct me if I'm wrong but an aircraft rented would fall under commercial operation and therefore you'd be required to maintain the aircraft to commercial standards.
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photofly
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Re: Incorporating a partnership

Post by photofly »

Renting a plane to someone for profit doesn't meet the definition of a commercial air service, doesn't require an OC or commercial registration, and doesn't impose commercial omaintenance requirements.

You would have to tell your insurance company though.
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CpnCrunch
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Re: Incorporating a partnership

Post by CpnCrunch »

photofly wrote: Thu Nov 21, 2019 5:22 pm Renting a plane to someone for profit doesn't meet the definition of a commercial air service, doesn't require an OC or commercial registration, and doesn't impose commercial omaintenance requirements.

You would have to tell your insurance company though.
The only issue is (as per your comment at the top of this page) that the aircraft would then count as a taxable shareholder benefit if it is owned by a corporation, so you would need to pay the corporation for all your flights.

It's not a problem if you don't rent it out and the corp makes no income, as you would presumably be paying the corp for all the expenses (so there would be no shareholder benefit).
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