ࡱ> B( / 0LDTimes New Roman0Wo 0 ` .  @n?" dd@  @@`` x #x        0AA@uʚ;2Nʚ;g4@d@d0ppp@ <4!d!d 0L<4dddd 0L <4BdBd. 0L80___PPT10 ?-July 26, 2005 vNASA / FAA Software & Complex Electonic Hardware ConferenceO =;=Business Law for DERs:A Brief Survey of Laws Affecting DERs and Their Businesses Thank You To::MARPA  Modification and Replacement Parts Association Non-profit trade association representing aftermarket parts manufacturers (PMAs) MARPA has DERs as members MARPA is committed to supporting the aftermarket manufacturing community  and DERs and an essential part of that community&77> [)  Thank You ToFAA Ken Filippelli All of you, for making the commitments necessary to be great DERs, and for taking the time in your busy schedules to attend required training ! Who Am I?Aviation attorney representing Manufacturers Repair stations Air carriers Distributors Served on FAA ARAC Committees: To rewrite organizational delegated privileges under 14 C.F.R. Subpart 183(d) To rewrite Part 21 manufacturing regulationsT8{8{OutlineDue Process for the DER (Can I Appeal a FAA Decision Affecting My Privileges?) Tort Liability for the DER (Can *I* Be Sued?) Choice of Entity for the DER (Should I Incorporate?) Choice of Tax Structure for the DER (What is an S Corporation?)ZDue Process for DERs4FAA v. Lopez & FAA v. Steenholdt FAA Orders say: DERs can appeal termination decision DERs are entitled to final order stating termination reasons and addressing defenses raised FAA did not state which reasons were basis, nor did FAA address DER s defenses DER brought FAA to court!^1i iCourt DecisionCourt of Appeals refused jurisdiction on case stated that FAA procedural violations were not prejudicial Reminded the public that there is no requirement for the formalities of a hearing in the termination or non-renewal of a DER&Lessons LearnedZDesignations are fragile things - Be Careful!! Pay attention to your relationship with your FAA Advisor  your continued privileges are at his or her discretion You can be terminated at any time, for any reason Address FAA employee concerns Promptly Completely To the satisfaction of your FAA contacts.Z=Z=Have You Heard This?jI m doing work on behalf of the FAA; I can t be sued!66HlCan Be Sued Can t Be Sued77 US has sovereign immunity US may be sued under Tort Claims Act There is a discretionary function exception Gov t officials enjoy  qualified immunity Acting within scope of discretionary authority Conduct does not violate clear statutory or constitutional standards But this does not apply to non-discretionary functions!@?ZWZZ?WkDiscretionary Function ImmunityIssuing some certificates may be mandatory e.g. a type certificate issued upon demonstration of compliance But the manner of review by FAA is discretionary Leaves some questions Is data review by DERs a discretionary function? If  NO then there s no possibility of qualified immunity Are DERs considered government employees? If  NO then there s no possibility of qualified immunity+@G1:*:+@(1*  lCan Be Sued Can t Be Sued77 rTort Claims Act applies to employees but not to contractors FAA position is that DERs are not employees of the FAA8%7%7DERs DO Get SuedRelying on law that is not on your side to begin with is not a safe way to conduct business My law firm has represented parties in several disputes in which DERs were threatened with suitDER Liability SummaryThere are limited exceptions from liability But I would not rely on them Work closely with your FAA Advisor and other FAA resources to help make sure work is completed properly Doing the job right is the best protection from liability  but even the best engineers get sued! Consider insurance as a means of protecting yourself in the event of threats of liabilityBnZ $\Some Types of InsuranceWorkman s Compensation Commercial multi-peril policy Professional Liability / errors and omissions Liability insurance covering premises, activities, and products Business interruption insurance Surety and performance bonds Employee fidelity bonds Business Structure for the DERUState Level Decisions Choice of Entity Federal and State Level Decision Tax structureL!!Why Think About Structure?rTax Consequences Liability consequences Investors Taking on a partner Selling the business to another professional Choice of Entity for the DERiSole proprietorship Partnership LLC Corporation This is a separate but related issue from tax structure!Sole ProprietorshipAll income and business expenses belong to the individual All of the liability belongs to the individual If you have employees, their wages may be a business deduction Advice: get a separate Tax ID for your business enterprise Partnership<Like a sole proprietorship in that individual partners are responsible for income Joint and several liability  ALL are responsible for the liabilities of one LLC/Inc Offer Limited LiabilityCorporations and Limited Liability Companies offer liability protection Separate entities In order to sue their owners/shareholders, the plaintiff must  pierce the veil  e.g. show: Inadequate capitalization Alter ego Commingling of funds:Ho9Ho9LLC v. CorporationEquity interest Corporations can have multiple classes of stock S Corporations can have only one class of stock LLCs can have multiple forms of equity interest Dividends Corporate dividends distributed pro rata based on ownership (different classes of stock may be treated differently) LLC profits subject to the LLC s management agreementrZZ ZZM@ ,pLLC v. CorporationDuration LLC usually exists for fixed period Corporation usually is perpetual Management Owners usually manage LLC by default  some states may not permit one member LLCs! Corporate shareholders may have no management dutiesL E  E 7 PSome Reasons to Choose  Inc. over  LLC LLC ownership limits may limit venture capital opportunities Major changes in ownership may terminate a LLC, but may not affect a corporation Benefits paid for owners may be treated as taxable income to the ownersFederal Taxes for the DERSole proprietorship Direct tax liability Partnership Shared pass-through tax liability LLC May elect pass through or corporate tax status on IRS Form 8832 Corporation May pay taxes separately or elect  S Corp statusZZ Z"ZZ@Z Z2Z "@  2&Subchapter  S CorpAllows certain small companies to elect to be pass-through entities - No double taxation Profits and deductions are passed-through to shareholders on a pro rata basis Limits imposed on size and negotiability of shares State Tax Structure for the DERSole proprietorship Direct tax liability Partnership Pass-through tax liability LLC Pass-through tax liability Corporation Corporation is a separate taxable entityZZ ZZZZ Z)Z  )  VPass-Through Tax Liability  Simple ExampleTwo DERs are co-owners in an LLC pass-through entity They bill $100,000 They split the proceeds - $50,000 each unless there is a written agreement to split the money differently Each DER has $50,000 taxable income Barring an effective contrary written agreementToZCZ$Z0ZoC$0  >Corporate Tax  Simple Example"Two DERs equal owners of a corporation Corporation bills $100,000 They each take $45,000 in salary  the remainder is retained by the corporation These amounts can be different! Each DER has $45,000 taxable income Corporation has $90,000 in salary deductions Remaining $10,000 is taxable income for company $10,000 may later be distributed to shareholders, but it is taxable income to them, as well!!!\Z Z$ZZ $ Thank You for Your Time!Jason Dickstein Washington Aviation Group, P.C. and the Law Offices of Jason A. Dickstein 734 15th Street, NW, Suite 705 Washington, DC 20005 Tel: (202) 628-6776 Fax: (202) 628-8948 email: Jason@WashingtonAviation.com"K$Q  ` ` ̙33` 333MMM` ff3333f` f` f` 3>?" dd@,|?" dd@   " @ ` n?" dd@   @@``PR    @ ` ` p>> <4(    6 P  T Click to edit Master title style! !  0   RClick to edit Master text styles Second level Third level Fourth level Fifth level!     S  0 ``  \*  0 `   ^*  0 `   ^*T  <)޽h @ ? Default Design 0 zr0 (    0XѦ P    P*    0lԦ     R*  d  c $ ?    0@ئ  @  RClick to edit Master text styles Second level Third level Fourth level Fifth level!     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Dickstein      . .02 _]Appearing Courtesy of MARPAc    .--"System 0-&TNPP &՜.+,0     $ On-screen ShowWashington Aviation Groupr  Times New RomanDefault DesignBusiness Law for DERsThank You To: Thank You To Who Am I?OutlineDue Process for DERsCourt DecisionLessons LearnedHave You Heard This?7Can Be Sued Cant Be Sued Discretionary Function Immunity7Can Be Sued Cant Be SuedDERs DO Get SuedDER Liability SummarySome Types of InsuranceBusiness Structure for the DERWhy Think About Structure?Choice of Entity for the DERSole Proprietorship Partnership LLC/Inc Offer Limited LiabilityLLC v. CorporationLLC v. Corporation)Some Reasons to Choose Inc. over LLCFederal Taxes for the DERSubchapter S Corp State Tax Structure for the DER,Pass-Through Tax Liability Simple Example Corporate Tax Simple ExampleThank You for Your Time!  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