Airplane Partnership Question

SPAJC

SPAJC

Pre-takeoff checklist
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Jeff
So....I've been considering taking on a partner in the ownership of my airplane. In discussing it with my wife, she posed a question:

If the partner falls into some sort of financial trouble or otherwise and is subject to civil liability/judgement, what would happen to his share of the airplane if a court order included it??? I own the plane outright, so there would be no loan on the airplane.

Or is this a non-event because the court can't take anything that isn't solely his and the bank has no right to it in the absence of a loan for which it was used for collateral?

Thanks in advance!


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I can't tell you in our litigious society whether it's the right answer or not, but this is why our aircraft is owned by an LLC and we are simply co-owners of the LLC.

Now if some judge says one of us has been naughty and must liquidate our assets, that'd force one of us to sell off their SHARE of the LLC, but it wouldn't have any particular affect on the aircraft or any of the other assets.

If said judge told the other owners of the LLC they had to liquidate the LLC itself, they'd probably have a fight on their hands.

None of us owns the aircraft or the other assets. We only own shares in the corporation.

Perhaps you need to look into restructuring the whole thing and sell the airplane to an entity that is designed to own the aircraft for multiple pilot use.
 
I bought into a partnership just like this. The LLC owned the plane and we owned shares of the LLC. In fact the gentleman who's percentage I purchased did have some health issues which forced him into some financial problems, hence the opening in the partnership.

If you didnt want to do that you could do a non-equity partnership, with a contract, so that retain full ownership but he has usage rights and duties for XX amount of money. Who knows what would happen in a court, but if it clearly stated he had no equity, but was leasing the right to use the aircraft it might be more secure.

good luck.
 
And whatever the answer is is very state dependent. So check with a lawyer in your state.
 
The partnership agreement should spell out what would happen in the event one partner needed to opt out, for any reason. And there could be many, say, like a loss of medical or certificate, or a relocation.
 
They could get a judgement that gave them possesion of his share of the airplane. Doubtful that they could get the other partners shares at all. Probably what would happen is his share would be sold to a new member and the creditor would get the money. The real problem is that guy would cease paying his share of expenses and the other members would have to pay them. There should be some wording to the effect that him not paying reduces his share by that amount, so if he doesnt pay the other members just take over his share.

If a partner doesn't pay his share, there are going to be problems. The only insurance against that is for every partner to pony up a security deposit which will cover an event up to the amount of the deposit.

Best thing to have is responsible, solvent partners that pay their bills and have a surplus in the plane fund.

Can you get a credit check on the guy?
 
Thanks for the replies...the LLC idea sounds pretty good. I may explore that.

I know the guy or guys that would be the co-owners and I don't foresee any problems; but you never know. I own the airplane outright as it is, and they have to pay their share up front. They can't use the plane as collateral, so I don't think a credit check is necessary.

I, or my wife more specifically is just curious as to what would happen if one of them got i to a situation where they were ordered legally to sell or give up their share. Suppose that happened and the other three owners didn't approve of the new member??? I guess we would have to sue the new member for their share?

Would a LLC protect us from anything other than personal liability?

Thanks!!!!
 
SPAJC said:
Thanks for the replies...the LLC idea sounds pretty good. I may explore that.

I know the guy or guys that would be the co-owners and I don't foresee any problems; but you never know. I own the airplane outright as it is, and they have to pay their share up front. They can't use the plane as collateral, so I don't think a credit check is necessary.

I, or my wife more specifically is just curious as to what would happen if one of them got i to a situation where they were ordered legally to sell or give up their share. Suppose that happened and the other three owners didn't approve of the new member??? I guess we would have to sue the new member for their share?

Would a LLC protect us from anything other than personal liability?

Thanks!!!!
Click to expand...

An LLC is good from both a liability standpoint and a "forced sale" standpoint. A good LLC operating agreement can cover what happens if a member is forced to sell his or her share through judicial means (bankruptcy, etc.). Usually, a good operating agreement will provide that the person who buys the forced-sale membership will ONLY gain any "economic" rights associated with the membership, and nothing else. In other words, if the LLC is paying out distributions (think operating business), the "new" member will get those, but the new member doesn't get to vote, etc. It would also provide that the "new" member doesn't get to use the plane. So the only benefit to a "new" member that you don't otherwise approve of would be the right to any proceeds for an eventual sale of the plane. In other words, the membership is basically worthless unless sold voluntarily and in accordance with the Operating Agreement (Which should require consent of the other members before a "new" member is brought in).

An LLC will also offer some level of protection to non-flying members if another member is in an accident. When there's an accident, there are (at least) two forms of potential liability. Operator liability (the pilot) and owner liability (the co-owners). If the airplane is owned in an LLC, the "owner" liability falls squarely on the LLC and not the "partners" personally. It's not necessarily a complete shield, but it's a good start.
 
SPAJC said:
Would a LLC protect us from anything other than personal liability?
Click to expand...

Realistically: Maybe. That's really up to your lawyer and the agreement that was drawn up, and what they can assist with in negotiation with whoever is attempting to mess with you.

I know a guy who was in a "good" LLC who's co-owners both lost jobs at the same time. The engine decides to barf, and the airplane sat unflyable for three years while they all hemmed and hawed over what to do.

Ultimately he convinced them to walk away and forego their equity so if he put a new engine on the airplane by himself, it would be his. The numbers worked out close enough everyone found that deal "reasonable". He and flew it for a few more years and sold it.

Didn't matter what the agreements said, they couldn't find buyers for their shares on a broken airplane.

They paid for the hangar to protect the airplane for those three years also, of course.

The best insurance against weirdness is partners who aren't barely able to pay the bills.

An engine/major maintenance fund based on actual usage hours and estimated against the expected overhaul hours of things, is also a good idea.
 
SPAJC said:
So....I've been considering taking on a partner in the ownership of my airplane. In discussing it with my wife, she posed a question:

If the partner falls into some sort of financial trouble or otherwise and is subject to civil liability/judgement, what would happen to his share of the airplane if a court order included it??? I own the plane outright, so there would be no loan on the airplane.

Or is this a non-event because the court can't take anything that isn't solely his and the bank has no right to it in the absence of a loan for which it was used for collateral?

Thanks in advance!


Sent from my iPhone using Tapatalk
Click to expand...

If you take in a true 'partner' (put the name on the registration), anyone acting against the general partner would be able to use the airplane to satisfy a claim.

If the aircraft is owned in a LLC, corporation or trust, the entity is separate from any of the stock or membership interest owners or beneficiaries. Someone who moves against any of the stock (or membership interest) holders would not be able to use the plane to satisfy his claim.

Find an attorney familiar with aircraft partnerships in your state. Have him advise you on the advantages or disadvantages of the respective entities in your state. Decide on an entity, get it properly registered, draft and pass the bylaws/operating agreement. Move the plane into the entity and sell your 'partner' the respective amount of shares (or membership interests). Before you do this, get advice on whether moving the plane into an entity has tax implication. It could trigger a sales/use-tax event or require you to pay business property tax on the plane.
 
I am not a big fan of partnerships, because I don’t want to deal with a.) partners crapping out financially and / or b.) partners who have differing ideas regarding maintenance / upgrades or general upkeep of the aircraft, like whether to remove bugs after every flight or not.

My wife and I thought that the potential trouble with a partnership is not worth the financial benefits, taking a partner in is therefore no option for us at this point. We rather swallow all costs ourselves and will keep it that way with our Mooney.

That being said, we also started to look in Piper Pacers as a plane to tool around and are planning to buy one later next year. With two planes in the hangar, we could share the Pacer with another pilot and would still have the Mooney available 24/7.

So, here comes the idea, which might also be an option for the OP, assuming it is feasible: What about renting it out to the one or multiple carefully selected ‘customers’? Like in a partnership agreement, every ‘customer’ could pay a monthly fee to cover the fixed costs like hangar, insurance, the annual inspection and possibly some interest on the capital employed. In addition to these monthly fees, everybody would pay a hourly fee, for the actual use of the aircraft, based on estimated costs of repairs, engine overhaul, gas, etc..

That way, the ownership structure would be clear. While the owner of the plane would admittedly carry all risks, related to the ownership of an aircraft, he would have the benefit of not having to argue with others about what to do with the plane. Also, the owner would have the freedom to simply kick out a ‘customer’ if things don’t go well. The ‘customers’ could also just walk away, if they want.

At least for people who already own a plane or a willing to pay for it entirely out of their own pockets, but who want to save some costs, this might be a viable option.
 
If you think in the pattern of 'taking in a partner' to fly 'your plane', you are probably better off not doing it.
 
German guy said:
I am not a big fan of partnerships, because I don’t want to deal with a.) partners crapping out financially and / or b.) partners who have differing ideas regarding maintenance / upgrades or general upkeep of the aircraft, like whether to remove bugs after every flight or not.

My wife and I thought that the potential trouble with a partnership is not worth the financial benefits, taking a partner in is therefore no option for us at this point. We rather swallow all costs ourselves and will keep it that way with our Mooney.

That being said, we also started to look in Piper Pacers as a plane to tool around and are planning to buy one later next year. With two planes in the hangar, we could share the Pacer with another pilot and would still have the Mooney available 24/7.

So, here comes the idea, which might also be an option for the OP, assuming it is feasible: What about renting it out to the one or multiple carefully selected ‘customers’? Like in a partnership agreement, every ‘customer’ could pay a monthly fee to cover the fixed costs like hangar, insurance, the annual inspection and possibly some interest on the capital employed. In addition to these monthly fees, everybody would pay a hourly fee, for the actual use of the aircraft, based on estimated costs of repairs, engine overhaul, gas, etc..

That way, the ownership structure would be clear. While the owner of the plane would admittedly carry all risks, related to the ownership of an aircraft, he would have the benefit of not having to argue with others about what to do with the plane. Also, the owner would have the freedom to simply kick out a ‘customer’ if things don’t go well. The ‘customers’ could also just walk away, if they want.

At least for people who already own a plane or a willing to pay for it entirely out of their own pockets, but who want to save some costs, this might be a viable option.
Click to expand...

Sounds like a feasible option....I agree with your point. I've never been a big fan of the co-owner or partnership idea. I've owned both of my airplanes outright and have liked not having to haggle for time, bicker over maintenance issues, or fight over costs and fees. I've always planned to keep it that way. But, things change and I'm looking for a more suitable situation that results in still having the airplane. Plus, I trust the guy(s) that would be the co-owner(s). The benefits seem to outweigh the risks for me; at least with these guys. I wouldn't enter into such an agreement with people that I didn't already know, and trust personally and as a pilot. I'd sell the airplane altogether before I did that. All that being said, I'm confident that we won't have to work issues out like that. But, I still want to protect myself and my investment, as well as theirs; which is why I am curious about the civil implications of such an agreement should that arise.

My intention is not to bring on partners to fly "my airplane". It's to bring in co-owners or partners, whichever is the most appropriate, to fly "our airplane" and share in the expense and ownership; while making the airplane a better equipped, better maintained airplane.

As always, I appreciate the discussion and insight!!!


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