FAA REGISTRATION OF AIRCRAFT BY A LIMITED LIABILITY COMPANY

I.                    Registration of Aircraft - Pertinent Law

A.                 Subtitle VII, Part A of Title 49 of the United States Code (49 U.S.C. 40101, et seq.) (the "Act")

1.                  Definitions - Section 40102

2.                  Registration

a.                   Sections 44102, 44103

b.                  Section 44104 (Dealers)

B.                 14 CFR Part 47 (the "Regulations")

1.                  Primarily, see Sections 47.2 through 47.31

II.                 Registration of Aircraft by a Limited Liability Company ("LLC")

A.                 1995 ACC Memorandum regarding LLCs.  In 1995, the Assistant Chief Counsel for the Aeronautical Center ("ACC") issued an internal memorandum (the "1995 ACC Memo") which, generally, approved of the use of LLCs for the purpose of aircraft registration.  The ACC indicated that the appropriate citizenship test for an LLC was that used for an "unincorporated association" as defined in the Act.

1.                  The unincorporated association citizenship test is very similar to the citizenship test applicable to corporations.

2.                  Nevertheless, the ACC indicated that citizenship issues and management/signature issues have to dealt with on a case by case basis.  That is, an LLC has to affirmatively establish that it is a U.S. citizen.

3.                  The 1995 ACC Memo indicated that the LLC should file the Certificate of Formation (or its equivalent).

a.                   The practice has varied over the years from filing the Certificate of Formation, the Operating Agreement, both or nothing.  The recommended practice is discussed below.

4.                  The issue of who can sign documents on behalf of the LLC was left open: "Competent signature parties can be determined by examining the pertinent state's limited liability act".

a.                   Although the signature by a "manager" has always been accepted by the FAA

b.                  Signatures by a "member" require additional documentation.

c.                   Signatures by an "officer" have been treated inconsistently.  In some cases the FAA would accept such a signature and in other cases, the FAA would require additional documentation.

B.                 So, an LLC can register an aircraft in its name if it is a US citizen.  What citizenship test applies to LLCs?

1.                  The test applicable to unincorporated associations—a three part test and very similar to the test applicable to corporations

a.                   Formation—the LLC must be formed in one of the states of the United States.

b.                  Management

(i)                  The president, if there is one, must be a US citizen.

(ii)                At least two-thirds (2/3) of the managers, or managing officers, must be US citizens.

(iii)               At least two-thirds (2/3) of the board of directors, or its equivalent, must be US citizens [we rarely see an LLC that has a board of directors or the equivalent (e.g., board of managers)].

c.                   Ownership and control

(i)                  At least 75% of the voting interest of the LLC must be vested in US citizens  (typically, these people are called "members").

C.                 FAA policy on LLCs from 1995-1999 a/k/a the "Dark Ages"

1.                  Aircraft registration by LLCs was marked by changing policies and some level of confusion and inconsistency by all parties from 1995-1999.

D.                 Efforts at Clarification

1.                  1999 ACC Opinion.  The ACC issued an opinion (a copy is attached) in an effort to simplify and clarify issues relating to the registration of aircraft by LLCs.

a.                   It concluded that the determination of the citizenship of LLCs should continue to be handled on a case by case basis; and that some form of documentation to support citizenship should be submitted to the ACC and/or the FAA to support the assertion that the LLC qualifies as a citizen of the U.S. (i.e., this continues the  policy that LLCs will be treated differently than any and all other applicants for registration of aircraft).

b.                  The 1999 ACC opinion said you can submit the following to support an application for registration.

(i)                  File the Certificate of Formation and Operating Agreement with the ACC and request an opinion; or

(ii)                File a Statement in Support of Registration with the FAA or ACC (a suggested form is attached hereto).

(a)                The ACC will issue an opinion based on the Statement (maybe).

(b)               The FAA Registry may register an aircraft in the name of an LLC based solely on the filing of a Statement or it may refer the matter to the ACC for advice and guidance.

(1)               If the LLC is a sole individual member and managed by an individual manager—the FAA registry will handle.  Almost everything else is referred to the ACC.

2.                  1999 FAA Registry Memorandum.  Shortly after the ACC issued its opinion, the FAA Registry issued a memorandum (see attached) to set forth the information it required to be included in the Statement in Support of Registration.

a.                   Full name of the LLC

b.                  State of formation

c.                   Effective date of LLC

d.                  The name of each member of the LLC and the type of entity

e.                   Whether the LLC is managed by members, managers, officers or some other form

f.                    Whether the individuals or entities which manage the LLC can act independently

g.                   The name of the manager and type of entity

h.                   A description as to how each legal entity within the LLC structure supports a determination that the LLC qualifies as a US citizen as defined in the Act.

E.                  Who should sign documents filed at the FAA?  What titles are acceptable to the FAA? What documentation does the FAA require?

1.                  Who should sign?  What titles are acceptable?

a.                   The appropriate party to sign documents on behalf of the LLC is typically governed by the LLC's Operating Agreement (sometimes the Certificate/Articles of Formation).

b.                  As a practical matter, the FAA will always accept the signature of "manager" on behalf of an LLC without further inquiry.  Currently, as of this minute, the FAA also accepts a traditional corporate title such as "president, vice-president" etc.

(i)                  This does NOT mean that everyone signing on behalf of an LLC is a manager or vice president (i.e., the solution is not to file a false document).

(ii)                Also note, "member/manager" is often not an acceptable title.

2.                  What support documentation does the FAA require?

a.                   If the documents filed at the FAA on behalf of an LLC are signed by a member or any person other than a "manager", or traditional corporate title, the FAA requires additional documentation to support that signature.

(i)                  The FAA used to require the submission of the Operating Agreement or other documentation to evidence the fact that that individual is authorized to sign on behalf of the LLC.

(ii)                Now the issue of who can sign on behalf of the LLC can be handled in the Statement in Support of Registration; however, if the FAA is confused or the Certificate is inconsistent, the FAA may require the submission of the Operating Agreement. (or additional documentation).

(iii)               If the Operating Agreement does not cover the signature in question, you may have to submit a resolution or certificate signed by the appropriate person(s) (i.e., whoever is given the power to make such an appointment in the LLC documents) which appoints the relevant person as an officer, agent, whatever.

F.                  Documents to be filed at FAA to support aircraft registration in the name of an LLC

1.                  Recommended.

a.                   Before Closing.  Submit a Statement in Support of Registration, Certificate of Formation and Operating Agreement to the ACC and request their opinion approving registration of the aircraft in the name of the LLC.

(i)                  Be sure to have the ACC send a memo to the FAA Registry to with regard to the citizenship of the LLC and who can sign for the LLC.

(ii)                Note that some of the attorneys in the ACC are reluctant to issue an opinion based solely on the Statement in Support of Registration.

b.                  At Closing.  File a Statement in Support of Registration at the FAA Registry and advise the FAA that the LLC has been approved by the ACC.

(i)                  If there is any doubt about signatures, the clarity of the Statement in Support of Registration etc., consider filing the Operating Agreement and any other documents necessary to evidence that documents filed on behalf of the LLC are signed by the appropriate parties (e.g., if officers are signing, have a resolution from the members appointing the officers).

(ii)                If the client is not concerned about the confidential nature of the Operating Agreement, file a copy with the FAA at the same time (note that all of the documents, whether filed or not, should be consistent [i.e., the Certificate of Formation, Operating Agreement and Statement in Support of Registration should be consistent (they rarely are).

2.                  LLC documents required to be filed at the FAA.  At this time, the FAA's position on required documentation for an LLC is in transition.  Additionally, title companies and attorneys take different positions on what should be filed.  Out of an abundance of caution, the parties should do one or more of the following:

a.                   File a Statement in Support of Registration; or

b.                  Operating Agreement (we believe that a Certificate of Formation will also be required, or something to evidence that the LLC has been formed).

(i)                  Preferably, you will also have an opinion from the ACC that blesses the LLC and which includes a discussion as to who can signs for the LLC.

G.                 Troubleshooting

1.                  Signatures

a.                   I don’t want to register an aircraft, just lease an aircraft.  Does the FAA still care about any of this stuff? Yes
The FAA does not care about US citizenship, but it does care about who signs on behalf of the LLC.

(i)                  If the signature is by a manager or traditional corporate officer, they FAA probably will not require additional documentation (however, I would get a Statement in Support of Registration anyway—in case they change their mind).

(a)                But, note that the FAA's 1999 memo indicates they will not accept any signature on behalf of an LLC without proof that the LLC has been formed (so, file a Statement, Certificate of Formation or Certified Copy of Operating Agreement).

(ii)                If the signature is by a member or some other title currently not acceptable to the FAA, you will have to submit a Statement in Support or the Operating Agreement (with a Certificate of Formation or other evidence the LLC has been formed).

2.                  Ownership

a.                   Can a limited partnership which is composed of corporations own 25% or more of the voting interest of the LLC?  Yes.  If the limited partnership is ultimately owned and controlled by "citizens of the United States".  (Note:  Contrast this with the management section below.)

b.                  Can a resident alien own 25% or more of the of the voting interest of the LLC?  No.  While a resident alien can register an aircraft in her name, she does not qualify as a "citizen of the United States" and, therefore cannot own 25% or more of an LLC.

c.                   Can a company which qualifies under Section 47.9 own 25% or more of the voting interest of the LLC?   No.  While such a company can register an aircraft in its name, it does not qualify as a "citizen of the United States" and, therefore cannot own 25% or more of an LLC.

3.                  Management

a.                   Background

(i)                  If LLC has one manager, he, she or it must be a citizen of the United States.

(ii)                If the LLC has multiple managers, at least 2/3 must be citizens of U.S. (management can be reserved to a corporation or partnership as long as it qualifies as a US citizen).

(iii)               If there is an equivalent of a board of directors, at least 2/3 of its members must be citizens of the U.S.

(iv)              If the LLC appoints "officers" (i.e., President, Vice President, etc.) the president and 2/3 of the officers must be individual citizens of the U.S.  This is based on specific language in 14 C.F.R. § 47.2.

(a)                If the LLC appoints officers, you probably need a Certificate or Resolution from the appropriate parties (i.e., members and/or managers), appointing those officers.

b.                  Management questions

(i)                  Can a partnership that is composed of corporations act as a sole manager of an LLC?   No.  Since such a partnership does not qualify as a "citizen of the United States".

(a)                Solution:  If the LLC otherwise passes the citizenship tests, you can replace the partnership with an U.S. citizen manager, or appoint enough managers so that at least 2/3 of the LLC's managers are U.S. citizens.

(ii)                Can a resident alien be the sole manager of the LLC? No.  A resident alien does not qualify as a "citizen of the United States."

(a)                Solution:  same as (1)(a) above

(iii)               Can a §47.9 corporation act as the sole manager of the LLC? No.  A §47.9 corporation does not qualify as a "citizen of the United States".

(a)                Solution:  same as (1)(a) above

H.                 Available options if the LLC fails any of the U.S. Citizenship Tests

1.                  .If the LLC fails the "organization" test

a.               The only available option is to transfer title to the aircraft to an owner trustee who holds title for the benefit of the LLC.

2.                  If the LLC fails the "management" test

a.               Change managers so you meet the test.

b.              Transfer title to the aircraft to an owner trustee who holds title for the benefit of the LLC.

3.                  Alternatives if the LLC fails the "ownership/control" test

a.               Owner Trust for the Aircraft.  The parties must transfer title to the aircraft to an owner trustee who will hold title and register the aircraft in the name of the Owner Trustee.

b.              Trust for the Voting Interests.  Create a trust for the offending entity and transfer the offending ownership interests in the LLC to a trustee who is a citizen of the U.S.

c.               Voting Trust for the Voting Interests.  A voting trust under §47.8 is not available for the voting interests of the LLC (because by regulation voting trusts under §47.8 are available only to a corporation).  However, if the owner of the LLC is a corporation which passes all citizenship tests except foreign ownership/control, a voting trust can be used for that corporation.  In this event, the LLC would qualify as an U.S. citizen and could register an aircraft in its name.  However, the ACC will not issue an opinion under §47.8 with regard to the registration of the aircraft in the name of the LLC.

4.                  "Based and primarily used" registration of an Aircraft under Section 47.9 of the FAA regulations

a.               This type of registration is NOT available to LLCs. The use of §47.9 for the registration of aircraft is limited only to corporations.

III.               Bonus Category--Registration of Aircraft by a Partnership

A.                 All partners, general or limited, must be individual U.S. citizens (49 U.S.C. §40102(a)(15); FAR Part 47, §§47.2 and 47.7(d))

1.                  All general partners must be listed on the Aircraft Registration Application.

2.                  If there are non-individual partners, the partnership can establish an owner trust under FAR Part 47, §47.7 to hold legal title for the benefit of the partnership.