AirBnB on a Runway...LLC v Sole Proprietorship

Gratitude: A Friend's Question on Business Structures

This week, a friend reached out to ask for advice about LLC vs. Sole Proprietorship for a rental business she is starting. My team and I are by no means experts here, but I was happy to engage in the discussion with her. I thought some of the content covered might be helpful to others.

Here's some concise information that might help others in similar situations.

For owners of unique aviation properties in Alaska, choosing the right business structure is crucial. It is one of the most important financial and legal decisions you will make. As a bookkeeping firm that supports small, specialized real estate businesses, this is exactly where careful planning pays off.

Why Business Structure Matters for Runway Properties

If your property is on or near a runway and you market to bush pilots, your business is fundamentally different from a typical rental or vacation cabin.

- You face higher liability risks from aircraft movements, guests walking near the strip, and extreme weather conditions.

- You are likely to carry specialized insurance and sign contracts with pilots, guests, or outfitters.

- Your property is a major asset you want to protect, not just “another side hustle.”

Because of this, the way you set up your business can determine whether a single incident stays a business problem or becomes a personal financial crisis.

Sole Proprietorship: Simple but Risky

A sole proprietorship is the default form of business when an individual starts operating without forming a separate entity. It is the simplest way to start, but simplicity comes with trade-offs.

Key features:

- No separate legal entity. You and the business are legally the same person. Contracts, debts, and liabilities are ultimately yours.

- Full personal liability. If there is an accident on the property, a dispute with a contractor, or a claim from a guest, your personal house, vehicles, and savings may be at risk, not just the runway property.

- Straightforward tax reporting. Income and expenses are reported directly on your personal tax return, typically on a Schedule C. There is no separate business tax return for the entity itself.

- Easy startup. You can operate under your own name or register a trade name (also called a “doing business as”). You still need a business license and any industry-specific permits in your state or locality.

For low-risk, service-based businesses, a sole proprietorship can be adequate. However, for aviation-adjacent real estate, personal liability exposure is a major concern.

LLC: Ideal for High-Risk, Asset-Heavy Operations

A Limited Liability Company (LLC) is usually a better fit when you are combining significant real estate with physically risky activity, such as bush-pilot traffic, remote winter operations, and guest lodging.

Key features:

- Separate legal entity. The LLC is its own legal “person.” It owns the runway-front property, signs leases, and enters contracts with pilots and guests.

- Liability protection (if properly maintained). In most cases, claims against the business are limited to LLC assets. Your personal home and non-business assets are more insulated, assuming you respect the formal separation between you and the company.

- Flexible tax treatment. For a single-member LLC, tax reporting can be just as simple as a sole proprietorship (pass-through taxation), but you gain the legal separation of the entity. As the business grows, you can explore other tax classifications with a tax professional.

- Easier future growth. As you add cabins, hangars, tie-downs, or partners, an LLC structure scales more smoothly. You can admit additional members, change ownership percentages, and build written agreements around how the business is run.

For remote or semi-remote airpark operations, the combination of liability protection and growth flexibility makes an LLC a more conservative, future-proof choice.

How to Guide - A Client’s Choice

When advising a client with runway-front property aimed at bush pilots, it helps to structure the conversation around a few practical questions:

Risk tolerance and asset protection

- If the worst-case scenario happened on the property, how comfortable are they with their personal assets being exposed?

- Would they sleep better knowing that business activities are separated from their personal finances?

Growth and partnership plans

- Do they envision taking on partners, investors, or co-owners later?

- Are they planning to expand from a single rental to multiple units, guided trips, or maintenance and support services?

Administrative comfort level

- Are they willing to file formation documents once, maintain a separate bank account, and keep simple records?

- Do they value extra protection enough to justify a small increase in paperwork?

Banking, insurance, and professional image

- Will they be working with lenders or insurers who prefer to see a distinct business entity?

- Does operating under a formal company name help them market more credibly to pilots and aviation partners?

For most property-based aviation businesses, the answers point toward forming an LLC rather than staying a sole proprietorship.

Step-by-Step: From Idea to Structured Business

Here is a high-level roadmap you can share with clients, tailored for aviation-oriented Alaskan property owners.

If you choose a sole proprietorship

1. Clarify the business model

- Define exactly what they are offering: hangar or tiedown rental, cabins or lodge stays, storage, or packaged experiences for bush pilots.

- This definition will guide licensing, insurance, and bookkeeping.

- Note: I have always found the Business Canva exercise a great way to start defining a business model. If you need help with this activity, we'd be happy to help.

2. Choose and register a business name

- Decide whether to use a personal name or a brand name that reflects the runway or region.

- Register any required trade name and obtain a state business license, along with local permits as needed.

- Check out Alaska's DCCED website for more info here.

3. Set up banking and basic systems

- Open a dedicated business bank account, even as a sole proprietor. Choosing a bank is a thing too, I'll get a blog out about.

- Implement basic bookkeeping so runway income, repairs, fuel, and improvements are clearly tracked.

4. Secure appropriate insurance

- Work with an insurance professional who understands aviation and remote properties.

- Ensure the policy reflects aircraft traffic, guest use, and winter conditions.

If you choose an LLC (recommended for most)

1. Design the ownership structure

- Decide whether it will be a single-member LLC or multi-member if partners are involved now or soon.

- Consider whether the LLC will own the real estate directly or lease it from the owner individually, with input from a legal or tax professional.

2. Select and clear an LLC name

- Choose a name that includes an LLC designator and fits the aviation brand they want to project.

- Confirm that the name can be registered in the relevant jurisdiction.

3. Form the LLC

- File formation documents with the state and appoint a registered agent.

- Keep copies of all formation approvals and store them safely. This is where you'll have to take care of that for SOA.

4. Draft an operating agreement

- Even for a single-member LLC, an operating agreement helps reinforce the separation between the owner and the company.

- For multiple owners, it is essential to spell out contributions, profit splits, decision-making rules, and buy-out terms.

5. Obtain an EIN and open accounts

- Apply for an EIN for the LLC.

- Open a separate business bank account and route all income and expenses through it.

6. Handle licensing, permits, and insurance

- Obtain a business license in the LLC’s name, plus any local approvals for commercial use of the runway-adjacent property.

- Place insurance policies in the LLC’s name and review coverage limits regularly as the operation grows.

7. Maintain ongoing compliance and clean books

- Keep business and personal finances separate at all times.

- Track income by activity (hangar rent, cabin rent, packages) to support tax planning, pricing decisions, and profit analysis.

- File required renewals and reports for the LLC and maintain basic records of decisions and agreements.

Shameless Plug - But We Honestly Love Helping!

As a bookkeeping firm, we add the most value by turning this decision into clear numbers and clear risk pictures. Show your client how each structure affects:

- Your personal exposure.

- Your ability to grow and bring in partners.

- The clarity of your financial records and tax planning.

That combination of financial visibility and legal foresight is what turns a unique Alaskan runway property into a sustainable, well-protected aviation business.

Note to Friend

Thank you for asking and helping to make this content come to life! Fly high!