Co-Ownership %

jheyen

jheyen

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heyen
I'm working on finalizing the details of an airplane purchase and approached a friend about being a partner. Initially we'd talked about 30-50% of a split but it's now dwindled down to 10% for his share.

I'm thinking that 10% may not be worth the hassle of co-owning an airplane but wanted to know the groups thoughts.

Thanks,
Matt
 
Agreed. What's the point? Personally I wouldn't bother. He can just rent it from you at an agreed upon hourly rate at that split.
 
You may be better off renting the plane to him (what some people incorrectly term 'non equity partnership').

Are you planning to take in any more partners ?
 
coloradobluesky said:
Maybe he should try for 1/2, but pay you later.
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I would not do that. Rather set up the plane as a co-ownership structure (LLC with a multi-member operating agreement, corporation with X shares) but you own all the shares at the outset. If he gets his finances in a position where he can buy at least a 33% share outright, sell it to him. Until then, keep him a renter.
 
Unless you're flying him around like a 91k or something, 10% sounds like more trouble than it's worth
 
MetalCloud said:
Agreed. What's the point? Personally I wouldn't bother. He can just rent it from you at an agreed upon hourly rate at that split.
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I agree. Just put him on the insurance and come to an agreeable hourly rate.
 
IMHO, the only way to do co-ownership is equal share for all partners. How would you do a 90/10 arrangement (or any other unequal arrangement)? Would the partner(s) with less skin in the game have the same rights?

[EDIT -- Dammit. I didn't see the previous post. Change my post to read "What he said"]
 
I was in an agreement where I paid xxxx per month regardless of hours, paid for my fuel and paid for half of the annual (not including squawks). It amounted to @ half of his fixed costs and I came out ahead at 3 hours per month as opposed to renting. It was a good deal for both of us.
 
Thanks for the replies, it definitely appears that an hourly rate is less complicated and more straightforward than this proposed arrangement.
 
50% it the only way! Split all cost down the middle no matter how much each partner flies. This is simple and works perfect.
 
pigpenracing said:
50% it the only way! Split all cost down the middle no matter how much each partner flies. This is simple and works perfect.
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Some corporate lawyers would call this a "suicide pact." A point will come when you disagree about something. In a true 50/50 partnership you have no way to break the tie. So if you go this way, just make sure you have a tie breaker and a way to buy out your partner.
 
Lindberg said:
Some corporate lawyers would call this a "suicide pact." A point will come when you disagree about something. In a true 50/50 partnership you have no way to break the tie. So if you go this way, just make sure you have a tie breaker and a way to buy out your partner
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Agree 100%. What is the price range of the planes you are looking at. Maybe go with something less expensive and outright own the plane yourself. That's what I did over 20 years ago and I glad I did it. I own, maintain and fly my own plane. I picked up my little Sport 150 for $23,500 not fast not the best useful load, comfortable to fly but its mine. Flown it from the Gulf of Mexico to Alaska to Chicago to Nevada and back to Alaska. I move the B19 Sport goes with me....:)
 
Lindberg said:
Some corporate lawyers would call this a "suicide pact." A point will come when you disagree about something. In a true 50/50 partnership you have no way to break the tie. So if you go this way, just make sure you have a tie breaker and a way to buy out your partner.
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No matter what the arrangement is for co-ownership, a well defined exit strategy is a must!
 
The way a less-than-equal co-ownership agreement can work is if the lesser partner is paying a higher usage fee than the majority partner. Also, for non-ownership rental of your plane, check with your insurance company to be sure they will allow it.
 
Exit strategy? If a partner wants out and the other partner can't afford the plane sell it... pretty simple. This happened to me twice over the past 15 years. I was told the partners wanted to sell their part so the plane went for sale. They were sold and the cash split 50/50.
 
pigpenracing said:
Exit strategy? If a partner wants out and the other partner can't afford the plane sell it... pretty simple. This happened to me twice over the past 15 years. I was told the partners wanted to sell their part so the plane went for sale. They were sold and the cash split 50/50.
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Yes, that's one possible outcome if you don't have an agreement. And if no one cares about the plane beyond his 50%, and the partners agree on the value, that might be a fine outcome.

But what if your partner sells his half to some stranger. Or someone you know to be unsafe. Or your nemesis. Or a flight school. And just saying that if one wants to sell, you sell, doesn't solve the problem. What if your partner needs cash ASAP to pay his gambling debts, and will take 50 cents on the dollar to get it? Should he be able to force you to take a haircut? Should you be able to force him to hold out for top dollar? What if he just liens up his half, or croaks leaving medical bills, and you wind up with the bank or the bankruptcy trustee as your partner?

What if you just really like the plane, and can't replace it with your 50% of the cash but can't buy him out (isn't that why you have a partner?) so don't want to sell at all?

There are well-known ways to avoid all of these issues.
 
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Agreed with what's been posted. Probably the only thing I can add is that this is a business transaction, so treat it as such. Friendships need to be put on the sidelines and clearer heads need to prevail when drawing up partnership agreements. While I generally agree that equal shares is preferable (with provision for a tie-breaker for disagreements), and that exit clauses are a must, I would add that sometimes it's not possible to have equal partners and folks that want part of the "ownership" experience and possible tax write-offs. If this occurs, make sure that there's a solid provision included in the agreement on equitable use based upon percentage of ownership, and make all owners responsible for the costs of maintenance, fuel, hangarage, etc.

You may want to also examine insurance costs since most insurance will rely upon the pilot with the fewest hours in order to provide a rate. If that low percentage partner has the fewest hours, he/she could be the largest component in your insurance coverage.
 
Jeff Oslick said:
The way a less-than-equal co-ownership agreement can work is if the lesser partner is paying a higher usage fee than the majority partner. Also, for non-ownership rental of your plane, check with your insurance company to be sure they will allow it.
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AFaIK that won't be a problem if all "renters" are listed on the policy as named insured (which they should be).
 
Lindberg said:
Yes, that's one possible outcome if you don't have an agreement. And if no one cares about the plane beyond his 50%, and the partners agree on the value, that might be a fine outcome.

But what if your partner sells his half to some stranger. Or someone you know to be unsafe. Or your nemesis. Or a flight school. And just saying that if one wants to sell, you sell, doesn't solve the problem. What if your partner needs cash ASAP to pay his gambling debts, and will take 50 cents on the dollar to get it? Should he be able to force you to take a haircut? Should you be able to force him to hold out for top dollar? What if he just liens up his half, or croaks leaving medical bills, and you wind up with the bank or the bankruptcy trustee as your partner?

What if you just really like the plane, and can't replace it with your 50% of the cash but can't buy him out (isn't that why you have a partner?) so don't want to sell at all?

What if I told you there were well-known ways to avoid all of these issues?
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Y'all think to much. Lol!
I have done several partnerships and also bought planes on my own. It is definitely nicer to own by yourself so you can do anything you want.
 
gismo said:
AFaIK that won't be a problem if all "renters" are listed on the policy as named insured (which they should be).
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We have looked into it on our policy. We are allowed a single non-owner renter as a named insured. But they warned us this needs to be a relatively "permanent" position, e.g., not a name that is going to change a few times a year.

Never assume what your policy will be; read it, and make the call if you need clarification on what a new endorsement will look like.
 
Unless it's well defined agreement, it could be a great way to end a friendship.
 
pigpenracing said:
Y'all think to much. Lol!
I have done several partnerships and also bought planes on my own. It is definitely nicer to own by yourself so you can do anything you want.
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The best day in a partnership is when a couple of other people put a check on the table to pay for that new engine.
The the not so good day is if you planned to take the plane for a trip and a couple of days before you realize that you traded out of that week early in the year :( .
 
I'm late to this one, but someone actually thought having a "co-owner" pay 10% of fixed costs and them pay 90% was reasonable in some world? LOL LOL LOL... no. Just no.

The entire POINT of a co-ownership is to lower both party's expenses.
 
How would a 10% ownership even work...? Pay $10,000 to be a 10% partners in the LLC valued at 100k (100k plane) and 10% partners deposit $500 a month and $125 per tach hour. Also only allowed 36 (10%) overnights with the plane a year.

I don't know seems complicated
 
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