Non-Equity Partner

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Tommar98

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Tommar98
Anyone have experience with non-equity partnerships? I am looking at one now at $250/month and $60/hr dry rate. The costs isn't the issue, its the legal structure that I am curious about. The guy I am speaking with doesn't appear to have an LLC or other entity so I am curious how insurance and liability works. Curious how other people handle these and more importantly what the FAA requires on these type of deals.
 
Not having a corporation is a bit of a red flag for me. As is, you'd just be making a deal with the owner and it gets really murky. From an FAA and tax standpoint, there are disadvantages here - you're not the owner and you're not using the aircraft, you're renting.

Better structure would be that a corp owns the aircraft and then you become a partial owner of the corporation, preferably an equal owner. That changes all kinds of things because you become an owner of the aircraft through flow through ownership of the corporation. You can do owner maintenance, your tax situation becomes different because you're using your own property, not renting it.

Ask a tax guy about your situation, but I think it's inferior to what we would call a non-equity club.
 
The FAA doesn't care unless you are providing an airplane and a pilot. I have been a non-equity partner in an airplane.

"Non-equity partner" is really generic term for what is really a number of ways a relationship between an owner and someone else flying his or her airplane can be structured. At its most basic, it's really nothing more than a glorified rental, and I guess some might refer to a long-term rental relationship with a private owner (as opposed to an FBO) as a "nonequity partnership." But what usually makes it different from a rental is the legal structure, usually a corporation or LLC. That's for a number of reasons from insurance to ease of adding and removing members to liability concerns.

In the case of mine, the legal structure was a corporation, but that was mostly because when this guy started doing it, LLCs were not in widespread use (actually, they might not even have been invented back then) Personally, I would not become a "partner" equity or non - unless it was set up as an entity.
 
Has worked wonderfully for me in two Bonanzas; it really is a glorified rental agreement (but more exclusive). The most important advice is to ensure that you're a "named insured" on the policy, rather than "named pilot." You have your hands on an enviable stewardship in a (hopefully) ongoing, mutually-respectful relationship. Plan on taking care of that plane like it's yours, and don't be cheap...it's easier to get someone's wife than it is their plane. If everything seems right, don't blow it.
 
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Agree with the above.
Named insured. Some sort of agreement in writing as to conditions of use, term of agreement, etc. Ideally it would be with an entity of some kind, but it sounds like you are basically helping to pay for fixed costs for the use of a plane from an owner and thats fine as well.

good luck.
 
Helpful info Thanks! On the other hand I may buy the plane I really want and look for 1 or 2 none equity partners.


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ChemGuy said:
Agree with the above.
Named insured. Some sort of agreement in writing as to conditions of use, term of agreement, etc. Ideally it would be with an entity of some kind, but it sounds like you are basically helping to pay for fixed costs for the use of a plane from an owner and thats fine as well.

good luck.
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This is more or less what my arrangement is.. in addition to the insurance stuff we have a short document we both signed just detailing worst case scenario stuff
 
I've been in two. Neither plane was in a LLC. Both worked quite well. If you are "named as insured" you are covered by the plane's insurance. If you are "named pilot" the owner is covered, but you are not and the insurance company can subrogate. In the latter case it would be in your best interest to get rental insurance.

A non-equity partnership is typically just a lease or renting. You may have a better, closer relationship with the owner than at a FBO or flight club.
 
How does the plane in an individual's name vs an LLC affect liability? Say your non-equity "partner" (renter) crashes it into a schoolyard full of children. How does that affect you personally?
 
EdFred said:
How does the plane in an individual's name vs an LLC affect liability? Say your non-equity "partner" (renter) crashes it into a schoolyard full of children. How does that affect you personally?
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In theory, the LLC limits the liability to the assets of the LLC, and protects the owners personal assets - hence “Limited Liability Company”.

But my question is this: in a non-equity partnership, is there an expectation that the non-equity partner contribute to ongoing maintenance and annual inspections? Or is it just the rental rate (in which case, “non-equity partner” is just a lot of words for “renter”, in my opinion).

If the normal use of “non-equity partnership” is understood to mean that the renter contributes to ongoing maintenance, I can’t see how this arrangement really makes sense for the owner: sure I’ll fly your expensive plane for a reasonable rental rate. When the big bills come, though, I’m gone! (And with no ownership in the plane, I have nothing keeping me around).
 
I know what protection that LLC provides what protection does the owner have when not in an LLC
 
Tommar98 said:
Anyone have experience with non-equity partnerships? I am looking at one now at $250/month and $60/hr dry rate. The costs isn't the issue, its the legal structure that I am curious about. The guy I am speaking with doesn't appear to have an LLC or other entity so I am curious how insurance and liability works. Curious how other people handle these and more importantly what the FAA requires on these type of deals.
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You are not a non-equity partner. You are a renter and nothing more. Insurance is an issue.
 
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The LLC only protects the owner if not flying. If you are the PIC the legal structure won’t matter. They’re coming after the PICs assets too.

I would think @AA5Bman that the monthly covers hangar insurance and annual inspection / 12 months. The hourly rate would build in something beyond to cover OH and avionics.

The renter gets access to a better quality better maintained more available plane (without daily minimums and scheduling hassles) without the capital outlay of a purchase. Same or more than renting hourly, but better experience.

Owner defrays fixed costs, plane gets used more but OH and MX funds build too. But owner maintains 100% control. Has absolute say in who the renter is. Totally different from a leaseback.
 
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I prefer to just work out a reasonable dry rate. I have that now on a Cessna Cutlass RG and an American Yankee AA-1. Did it on the Luscombe I used to fly, the only exception there being that I was named insured for a while and paid my share for that as I started with no taildragger experience but came off the policy and went open-pilot later. Buy non-owned insurance.
 
As the sole owner of the aircraft, of course you could have some liability. You could have some liability if you were not the sole owner
 
Clip4 said:
You are not a non-equity partner. You are a renter and nothing more. Insurance is an issue.
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Don't bother taking any prisoners; truer words were never spoken. The difference, however, is that this "renter" has access to a non-fleet aircraft, and can, hopefully, cultivate a partner-like relationship in an aircraft without a huge cash outlay. The downside is a reality, of course, but with reasonable participation and reciprocity, the benefits can be considerable. Your post nailed it.
 
I did a non-equity partner for a while. Worked out well for me. Insurance wasn't an issue, just added me to the policy as named insured. We split hangar and maintenance. I don't recall now if we split insurance or if I just paid the amount the policy went up when I was added but either way it wasn't a big number. And I paid a dry rate that was 100% of what the owner calculated as his per hour for engine and prop reserve which something like $15 or $20/hr.

We didn't have any kind of contract, it was a handshake deal and either one of us could end it at any time by simply settling up and walking away. Worked well for us and I'd do it again on either the owner side or the non-equity side so long as it was someone I knew and trusted.
 
Juliet Hotel said:
I did a non-equity partner for a while. Worked out well for me. Insurance wasn't an issue, just added me to the policy as named insured. We split hangar and maintenance. I don't recall now if we split insurance or if I just paid the amount the policy went up when I was added but either way it wasn't a big number. And I paid a dry rate that was 100% of what the owner calculated as his per hour for engine and prop reserve which something like $15 or $20/hr.

We didn't have any kind of contract, it was a handshake deal and either one of us could end it at any time by simply settling up and walking away. Worked well for us and I'd do it again on either the owner side or the non-equity side so long as it was someone I knew and trusted.
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One more time, you were a renter. Part of your rental agreement was a fixed monthly fee (hangar) and a variable monthly fee (maintenance) if you used the plane it not + a dry rental fee when you used the plane.
 
Clip4 said:
One more time, you were a renter. Part of your rental agreement was a fixed monthly fee (hangar) and a variable monthly fee (maintenance) if you used the plane it not + a dry rental fee when you used the plane.
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Ok I was a renter. And we liked to call that relationship a non-equity partnership. Happy now?
 
Juliet Hotel said:
Ok I was a renter. And we liked to call that relationship a non-equity partnership. Happy now?
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I was about to make that post if you hadn't. I'm not sure I could read all the new posts if every time somebody used the term 'non-equity partnership' he was going to come in and correct it. We got it. They're renters. You don't have to say it again.
 
EdFred said:
How does the plane in an individual's name vs an LLC affect liability? Say your non-equity "partner" (renter) crashes it into a schoolyard full of children. How does that affect you personally?
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"Partners" (the real term) are, in most states, personally liable for the obligations of the partnership and for the acts of the other partners. That is actually what the invention of the LLC was designed to accomplish. Remove or partnership liability in a less formal structure than a corporation.

In the crash situation, the concern is that Partner A can be personally liable for Partner B's crash without having contributed to it in any way other than being a partner. The LLC, Corp, etc, eliminates that part of the potential liability.

If you are taking about a rental, the picture is a bit different. It provides a bit of a buffer to whatever liability an owner might have solely by being an owner.

The conceptual problem with most of this is that we tend to see all or nothing answers when it comes to liability protection. It's much more subtle than that. We think, for example, that all a lawyer has to do is snap her fingers to pierce the corporate veil, so why bother? But the goal of the buffer is really to give the human being a better bargaining position if a problem does arise.
 
BrianNC said:
I was about to make that post if you hadn't. I'm not sure I could read all the new posts if every time somebody used the term 'non-equity partnership' he was going to come in and correct it. We got it. They're renters. You don't have to say it again.
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Sure he does. Heck I made that point back in post #3 :D
 
@alfadog @Juliet Hotel and others - how did your rental or agreement with the owner take place? I’ve had my license for 26 years and been personal friends with only 3 aircraft owners, none of which offered to let me fly even from the left seat, let alone solo.

Did you seek them out? Already friends? Are you both CFIs (CFIs seem to always have access to people’s nice personal aircraft).
 
Terry M - 3CK (Chicago) said:
@alfadog @Juliet Hotel and others - how did your rental or agreement with the owner take place? I’ve had my license for 26 years and been personal friends with only 3 aircraft owners, none of which offered to let me fly even from the left seat, let alone solo.

Did you seek them out? Already friends? Are you both CFIs (CFIs seem to always have access to people’s nice personal aircraft).
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In the case of the two of mine which had nothing to do with being a CFI (one a non-equity ownership interest, the other a simple rental), there were notes up on the airport bulletin board I responded to. I know of others who were more proactive in noticing which airplanes seemed to sit around on the ramp without being used much and took the initiative of looking up and asking the owner.
 
midlifeflyer said:
In the case of the two of mine which had nothing to do with being a CFI (one a non-equity ownership interest, the other a simple rental), there were notes up on the airport bulletin board I responded to. I know of others who were more proactive in noticing which airplanes seemed to sit around on the ramp without being used much and took the initiative of looking up and asking the owner.
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It’s all about the attitude and yours was also just a mention in a much larger post and then you didn’t jump back into tell everybody they were renters when they kept mentioning non-equity partnership. :D
 
BrianNC said:
It’s all about the attitude and yours was also just a mention in a much larger post and then you didn’t jump back into tell everybody they were renters when they kept mentioning non-equity partnership. :D
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Renter nothing! In one of them, I was vice president of the company! :D
 
BrianNC said:
I'd actually like to be a 'glorified renter' if someone in the Atlanta area would like to contact me and it's cheap relatively speaking. :D
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And I want a toilet made of solid gold, but it’s just not in the cards now, is it?
 
Terry M - 3CK (Chicago) said:
@alfadog @Juliet Hotel and others - how did your rental or agreement with the owner take place? I’ve had my license for 26 years and been personal friends with only 3 aircraft owners, none of which offered to let me fly even from the left seat, let alone solo.

Did you seek them out? Already friends? Are you both CFIs (CFIs seem to always have access to people’s nice personal aircraft).
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He and I did our private certs at about the same time with the same CFI so we were acquainted that way. A year or two later he bought a plane with a fresh overhaul and was very paranoid about the engine corroding if it sat too much so he tried to fly the doors off it but work and other commitments kept him from flying it as much as he'd like. He had asked me to ride with him on a few flights because at the time he wasn't yet completely comfortable talking to ATC and I was regularly flying club airplanes out of a class C airport at the time. Over dinner on one of the trips he talked about wanting his plane to fly more and how I was one of the only people he'd trust to fly it so why don't I buy half of it yada yada yada.

I said gracious offer and I'd love to but I just wasn't in a position to buy half a Mooney at the time. He said well how'z about we just do a non-equity thing then. We talked about how that would work, agreed to the terms, shook hands and ordered desert. Chocolate mousse, delicious. There was no contract, nothing was signed, total handshake deal.

Now I'm not saying that's way these deals should happen nor that there shouldn't be a contract involved. I was comfortable with just a handshake because I trusted him. Stupid choice? Probably but it worked out in my case. And I'd do it again on just handshake if it was someone I trusted. But of course the older I get, the less I trust people so I'd probably be more cautious now than I was then.
 
It sounds like you're buying the rights to fly the other guy's plane and not buying part of the plane itself. It seems to be that way because of the extremely low monthly cost and non equity.

If you go with this, be sure to have your own insurance instead of the other guy's insurance.
 
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