Co-Ownership Options

[BrianDC]

Originally Posted by Dan B

I have been in a partnership and it has stressed the best of friendships.

I am now in a co-ownership. Is has been working flawlessly.
I am responsible for hangar costs, insurance, fuel, maintenance, planning upgrades, and cleaning. I am also responsible for sitting right seat when the co-owner wants to fly. My co-owner (wife) also asks if we need to buy anything for the airplane when we go to AirVenture. As long as I uphold my responsibilities, everything is great!

This is the best type of co-ownership arrangement!

The stories I have read kept me away from a partnership (or even LLC) for a certified plane and why I decided to build an RV.

[Reaver]

Originally Posted by odens_14

Full disclosure I haven't done this yet and am not a lawyer; so there may be unforeseen issues with my idea.

I too have been kicking around the idea of looking for a partner, but don't want a messy break up like others have indicated. For me the benefits I'm looking for are primarily to get the plane flying more and as a bonus lower my fixed cost. I've built this plane and it's not on my radar to sell it even if I don't have a partner so the capital cost isn't a concern to me.

One thought I've had was setting up an LLC and selling only 1% to my partner say for $800 at a $80,000 valuation. The partnership agreement would spell out that all fixed costs (hangar/insurance/and say $500 for a "no squawk" CI) would be paid monthly 50/50, and we would agree on a "wet rate" for hours used that would cover larger maintenance items and engine reserve. I would have the right to buy out the partner for any reason at $800, and he would have the right to force me to buy him out for any reason at $800. The partner would have no say in anything as far as upgrades but also wouldn't be expected to pay. The idea is that if there is any disagreement his only recourse would be to walk, keeping the purchase price low ensures that "payoff" isn't problematic for me. On the other hand I think there is value to my potential partner to have access to the plane with little capital down even without control.

If you were in southern California I'd take you up on this yesterday!

[lr172]

Originally Posted by odens_14

Full disclosure I haven't done this yet and am not a lawyer; so there may be unforeseen issues with my idea.

I too have been kicking around the idea of looking for a partner, but don't want a messy break up like others have indicated. For me the benefits I'm looking for are primarily to get the plane flying more and as a bonus lower my fixed cost. I've built this plane and it's not on my radar to sell it even if I don't have a partner so the capital cost isn't a concern to me.

One thought I've had was setting up an LLC and selling only 1% to my partner say for $800 at a $80,000 valuation. The partnership agreement would spell out that all fixed costs (hangar/insurance/and say $500 for a "no squawk" CI) would be paid monthly 50/50, and we would agree on a "wet rate" for hours used that would cover larger maintenance items and engine reserve. I would have the right to buy out the partner for any reason at $800, and he would have the right to force me to buy him out for any reason at $800. The partner would have no say in anything as far as upgrades but also wouldn't be expected to pay. The idea is that if there is any disagreement his only recourse would be to walk, keeping the purchase price low ensures that "payoff" isn't problematic for me. On the other hand I think there is value to my potential partner to have access to the plane with little capital down even without control.

This is intriguing to me, as I am looking for a way to keep my 6 after the 10 is done. Capital isn't my issue, but ongoing costs are.

Have you vetted this with EAA or the FAA? It looks a lot like a club, eventhough there is an ownership stake. For that reason, I would be concerned with whether or not the FAA would consider it a partnership under the experimental guidelines.

I would be concerned that while legally it falls under a co-ownership, functionally it operates like a club. The small ownership stake is pretty much comparable in size to what most clubs charge their members to join. The rest is just like a club - pay per hour with no real rights. I would be very concerned with how the FAA would interpret this if something bad happened. They will likely argue that the shared costs are not in proportion to the ownership interest and therefore a reimbursement to the majority owner, which is a no no. While I agree that is not fully logical, it is how the FAR's are written/interpreted.

While not an attorney, I would be very scared arguing this in front of an ALJ. They don't follow the same guidelines as regular judges.

I think if the co-owners stake was larger, this is a doable approach, even with the buy out language. But the imbalance between ownership and hourly cost needs to get vetted with the FAA to ensure they are on board.

Larry

[odens_14]

Originally Posted by lr172

This is intriguing to me, as I am looking for a way to keep my 6 after the 10 is done. Capital isn't my issue, but ongoing costs are.

Have you vetted this with EAA or the FAA? It looks a lot like a club, eventhough there is an ownership stake. For that reason, I would be concerned with whether or not the FAA would consider it a partnership under the experimental guidelines.

I would be concerned that while legally it falls under a co-ownership, functionally it operates like a club. The small ownership stake is pretty much comparable in size to what most clubs charge their members to join. The rest is just like a club - pay per hour with no real rights. I would be very concerned with how the FAA would interpret this if something bad happened. They may also argue that the shared costs are not in proportion to the ownership interest and therefore more like a club.

While not an attorney, I would be very scared arguing this in front of an ALJ. They don't follow the same guidelines as regular judges.

I think if the co-owners stake was larger, this is a doable approach, even with the buy out approach.

Larry

Larry, I haven't done any real digging, just an idea for now.

I'd have a hard time believing the FAA could say anything as long as there is a bona fide ownership interest, albeit a small one. AFAIK the only limitation with regard to experimental is that the plane can't be used for commercial purposes, which this clearly isn't (as long as all the payments are clearly for costs not profit).

furthermore, if I recall my reading correctly some EAA employees themselves have multiple experimentals in an employee flying cub, so I'm not sure that even if it was classified as a club that would be a bad thing. see here

with that said, if I were to go down this road I'd certainly speak with EAA and my insurance agent before earnestly looking for a partner, and consult an aviation attorney to finalize the contract with my partner.

[erich weaver]

Be aware that if you go to a true co-ownership and play by all the rules, you would have to change the title and notify FAA, which may trigger sales tax.

erich

[xavierm]

I was in a partnership with an airplane. As others have said, make sure everything is written down. Nearly lost a friend because of it. I ended up carrying the financial burden with a promise to pay and it never happened. The person went to his grave owing me.

[odens_14]

Originally Posted by erich weaver

Be aware that if you go to a true co-ownership and play by all the rules, you would have to change the title and notify FAA, which may trigger sales tax.

erich

You will need to change ownership but it shouldn't typically trigger sales tax if done correctly, at least that's the case in Minnesota. You'd want to transfer from owner to the LLC while owner is owns 100% of the LLC, then sell shares of the LLC

excerpt from MN sales tax exemption:

Transferred to corporation or partnership: The aircraft was
previously registered and taxed in Minnesota and is being
transferred to a partnership in exchange for an interest in the
partnership, or to a corporation in exchange for at least 80 percent
of the stock of the corporation. Attach documentation showing it is
a transfer under Section 351 or 721 of the Internal Revenue Code.
Examples are partnership agreements, member control
agreements, or statements showing shareholders and their
ownership percentages.

[rv7charlie]

What's different, other than scale & zeros on the check, between an LLC that sells a tiny share for access, and an organization like NetJets (other than the LLC vs corp vs ??)?

[KRviator]

Originally Posted by Shark

After reading that bit of entertainment, I don't think a partnership sounds like a good idea. I wonder how the story ends?

Dunno what came out in the wash unfortunately, but the RV has been doing a bit of RV-ating lately, according to FlightAware - with ADS-B active!

[odens_14]

Originally Posted by rv7charlie

What's different, other than scale & zeros on the check, between an LLC that sells a tiny share for access, and an organization like NetJets (other than the LLC vs corp vs ??)?

quite a bit but the two main ones are:
-NetJets is a for profit company, their rates are higher than their cost.
-NetJets is providing transportation, with pilots; not simply access to the plane you own. I̶ ̶d̶o̶n̶'̶t̶ ̶t̶h̶i̶n̶k̶ ̶u̶s̶e̶r̶s̶ ̶o̶f̶ ̶N̶e̶t̶J̶e̶t̶s̶ ̶o̶w̶n̶ ̶a̶n̶y̶t̶h̶i̶n̶g̶ ̶t̶o̶ ̶b̶e̶ ̶h̶o̶n̶e̶s̶t̶.̶ ̶ ̶I̶ ̶t̶h̶i̶n̶k̶ ̶i̶t̶'̶s̶ ̶m̶o̶r̶e̶ ̶l̶i̶k̶e̶ ̶U̶b̶e̶r̶ ̶i̶n̶ ̶t̶h̶e̶ ̶s̶k̶y̶ ̶s̶o̶ ̶t̶o̶ ̶s̶p̶e̶a̶k̶ ̶(̶w̶i̶t̶h̶ ̶e̶x̶t̶r̶a̶ ̶z̶e̶r̶o̶s̶ ̶a̶s̶ ̶y̶o̶u̶ ̶s̶a̶y̶ ̶:̶D̶)̶

edit: NetJets does actually sell shares of aircraft. however the main difference of providing piloted transportation vs access to owned aircraft remains and is substantial when it comes to our Operating Limitations