What Happens To An Aircraft’s Registration If The Corporation Or Limited Liability Company Owner Is No Longer Qualified To Do Business?

Gregory J. Reigel, recently wrote this very informative article in the LPBA Journal, VOL. XL No. 1, Spring 2018:

Many aircraft owners use a corporation or limited liability company (“LLC”) to register and hold title to their aircraft. Oftentimes, the owners set up their legal entity and then forget about it. Unfortunately, many states require legal entities to file an annual renewal/registration or pay fees to stay “active.” If an entity does not perform the required filing, the entity could become “inactive,” “suspended,” “not in good standing,” or it could be “administratively dissolved.”

Fortunately, in most of those states the entity can be reactivated/reinstated, have the suspension removed, or be placed back in good standing by accomplishing the required filing (and usually paying an associated fee). But what happens to an aircraft’s registration if this business entity holds title to that aircraft? Can the aircraft still be legally operated while the entity is “dissolved,” “inactive” or “suspended?”

According to a recent Legal Interpretation[1]issued by the FAA’s Office of the Chief Counsel, the short answer is “no.” But to understand why the answer is “no,”it is helpful to look at the regulations that govern registration of an aircraft by a business entity.  14 C.F.R. §47.3(a)(3) permits a corporation (or an LLC, which is also treated as a legal entity similar to a corporation) that otherwise meets the U.S. citizenship requirements, to register an aircraft with the FAA. 14 C.F.R. §47.43(a)(3) tells us that an aircraft’s registration is invalid if, at the time of that registration, the business entity applicant was not qualified to submit an application under 14 C.F.R. Part 47.

This means a business entity that did not have legal status at the time it submitted its registration application to the FAA would not have been qualified to submit the application. And by extension, according to the FAA, “a business entity that does not have or has lost legal status in the State in which it has been incorporated is neither eligible to register an aircraft nor operate that aircraft.”

However, whether a business entity has “lost legal status” will depend upon the facts of the situation and also the applicable state law. As a result, the applicable state law must be analyzed to determine the business entity’s true legal status if it is in this situation.  So, how does the FAA find out about an invalid registration? Well, in practical terms this issue usually comes to light during an investigation or an enforcement action.

And if the FAA learns the business entity has lost its legal status and that the aircraft’s registration is therefore invalid, it could pursue enforcement action against anyone who operated the aircraft when the registration was invalid in violation of Section 47.3(b). It could also pursue the business entity owner for failing to return an invalid or ineffective registration certificate as required by Section 47.43(b).

If aircraft owners are going to use a corporation or LLC to hold title to an aircraft, they should not simply create the entity and then forget about or disregard it. Aircraft owners need to make sure they keep up with the required formalities and filings, including payment of fees etc., to ensure their business entity remains active and in good standing.


[1] http://bit.ly/2sHQt8f

 

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