One of the most common traps that aircraft owners fall into is to put the aircraft and the crew in a company which is created solely for that purpose (a "sole purpose company"). This might be done for many reasons:

• To enable the user to avoid liability if something happens to the aircraft

• To enable multiple owners to use the aircraft

In some cases, a Delaware corporation will be used in the mistaken belief that this will enable the owner to avoid sales and use taxes. [see The Myth of the Tax-Exempt Delaware Company]

The use of a "sole purpose company" can create several problems:

• The FAA rules do not allow a "sole purpose company" to operate an aircraft under Part 91.

• The insurance policy may not cover operations which are not conducted under Part 91.

• The Federal Transportation Tax may apply.

Although there are only a few cases where the FAA has imposed sanctions on a "sole purpose company", the official position of the FAA is that such a company is illegal. Furthermore, there is no guarantee that the position of the FAA will be as forgiving if the aircraft is involved in a major accident. Since many insurance policies do not cover "commercial operations", this means that the "sole purpose company" might fail to provide protection at the very instant when the protection is needed the most.

This does not mean that the objectives are unattainable. In many cases, operations can be still structured to meet these objectives, without resort to a "sole purpose company". In other cases, the only good answer is to buy a lot of insurance. But, even here, the advantage is that the owner is not operating with the false sense of security and the tax problems that a "sole purpose company" might bring.