TRocket
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I see what you did there!!!! I would expect a discounted rate....
Partnership info you'd be willing to share
- Thread starter eman1200
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I see what you did there!!!! I would expect a discounted rate....
farmerbrake
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farmerbrake
Not sure if our LLC is just set up different or not, but it's really easy to get in/out. And there's not much work on our part as 'members'.
We have a meeting 1 time each year, discuss a few things. The pres. Writes it all up after the meeting is done and that's it.
As far as selling shares 2 have been sold since I've bought in (there were originally 5 members, dropped to 3, then I bought in as a 4th, and that's the way it's been).
In all cases I've been involved with the pres. Wrote up an aggrement (literally the same one they used back in 1990 when the llc first began, adjusted for insurance requirements), current members have right of first refusal after a meet (if they even decide to meet the new guy, one partner always defers his opinion to another partner), money changes hands and the agreements are signed at the other partners convince.
Since I created the 4th share I was a little different but I met with one partner one day and saw the plane, ran some numbers the next, signed the paperwork the next day and then met the 2nd partner after I was officially a member (he gave me keys and showed me how they run the plane, etc.) Didn't end up meeting the third partner until almost 1 year of ownership lol.
denverpilot
Tied Down
There's many things in the above that we do in our co-ownership and a few that are slightly different. That's probably my only comment, everything is negotiable.
If you can't get through the initial negotiations about how to operate the aircraft and the money, get far far away.
If you find that everyone generally agrees and thinks similarly, then proceed.
If you can't get through the initial negotiations about how to operate the aircraft and the money, get far far away.
If you find that everyone generally agrees and thinks similarly, then proceed.
ChemGuy
Cleared for Takeoff
Sounds advice. Use an LLC so buying in and out is easy, A good operating agreement with info on scheduling, MX, upgrades, etc and meetings every once ins awhile.
But having people who get along really helps.
If one guy wants all glass in a cherokee 140 that may cause issues....or the VFR only guys wonder why you keep paying for GPS databases, etc there will be friction.
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Bro do you even lift
actually this is where I'm struggling a little bit now. first of all, 'the loan'. what if people want to finance different amounts? also, are we all co-signing one loan? not sure how to protect ourselves if one person should somehow default. those kind of things are all new to me.
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Ari
I have a rule against lending people money secured by something with wheels. Airplanes count as something with wheels, and co-signing a loan by myself for collateral that other people will be moving from place to place counts as lending them money. If I were going to co-own something that secures a loan, I would want all of the other co-owners to co-sign the loan.
Good point. I don't recall exactly how it's worded, but in my agreement we have a requirement that the plane be maintained as necessary for legal IFR flight, as well.
Financing for a partnership (I use that term loosely, to include LLCs, etc.) is always going to be a struggle. Expect most lenders to insist on personal guarantees from every partner, probably for the full amount of the loan (not just your proportional share). You might find a friendly lender willing to do proportional guaranties, but expect the other terms to be less favorable (higher rates, etc.). IMHO, best way to handle a partnership is for every to effectively pay cash. If the individual partners need a loan for their share, it's on them to get their own loan, not secured by the plane (home equity, etc.). Much less risk for all of the co-owners if there's no loan against the plane itself.
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Bro do you even lift
no doubt I'm kind of leaning towards people who need loans to get their own loan, if possible. I'm gonna call AOPA and ask, although I know they're gonna try to sell me their stuff, financing, insurance, etc... but maybe I'll get some good feedback.
I'd certainly keep your expectations pretty low in terms of what AOPA is going to provide in that regard. Financing co-ownership is so situation-dependent that you're either going to get super-generic advice, or advice that may end up being wrong. As to insurance, keep in mind that many underwriters won't permit more than 4 named pilots on a policy; above that it becomes a "flying club" and your rates will skyrocket. There are some underwriters who will allow 5 without getting into "club" territory, but the pool shrinks pretty dramatically (this one I know from experience).
ChemGuy
Cleared for Takeoff
eman, the plane i was in was previously owned by a single guy with a loan. When they created the LLC, he was an owner of a share. By the time i got in he was retiring and didnt own a share, but was still allowed to fly (he didnt fly much) and was helping us with paperwork etc. I looked into financing the plane thru the LLC so he wasnt obligated anymore and the LLC would be totally independent. Several companies were fine with that, but we would each have to sign personal guarantees on the loan as well. That way if the LLC folded the bank wasnt left with a plane they really didnt want. It seemed like bringing someone in was a matter of credit check and new personal guarantee. Didnt seem a big deal when i discussed it with the loan people. I wasnt flying enough and had some other things going on so I sold my share before we finalized anything on re-finance.
If I was doing this form scratch, based on my limited experience, I would;
find a guy or 2 that wanted to form partnership in plane I wanted to be in
Figure out plane requirements, budget, down payments amounts etc
Form LLC for purpose of owning plane - get paperwork operating agreement, etc done
Find financing for plane using LLC and agreed upon amounts for downpayments, etc
Find plane
Buy plane
Fly to OSH and drink at Jay's party.
Easy.
If I was doing this form scratch, based on my limited experience, I would;
find a guy or 2 that wanted to form partnership in plane I wanted to be in
Figure out plane requirements, budget, down payments amounts etc
Form LLC for purpose of owning plane - get paperwork operating agreement, etc done
Find financing for plane using LLC and agreed upon amounts for downpayments, etc
Find plane
Buy plane
Fly to OSH and drink at Jay's party.
Easy.
I am in a 5-way partnership on an A36TC that exists since the early 90s. People have bought in and out of it over the years and I believe only one of the initial partners is left.
- We happen to be a corporation that by its bylaws can issue 5 shares. Don't know why it was done as a corp rather than a LLC, it all depends on your state what is better.
- Plane is registered to the corp, all bills go to the corp which pays out of corporate funds. We dry-lease the plane from the corp and leave it 'at the tabs'.
- Hangar, Insurance, basic annual, databases are divided by 60 and paid by each member in monthly payments.
- Engine reserve, prop reserve, ongoing maintenance fund to cover oil-changes and anything exceeding the basic annual are assessed based on hobbs hours.
- Dec 18th we have an annual meeting in the FBO conference room. We do the formalities, elect officers, go through the past years finances, approve the budget for the next year, decide on upgrades, discuss operational stuff that has come up throughout the year etc. In the end, we draw numbers from a hat to set up an order and go around the table until all the weeks are picked. A 'week' starts Friday at midnight. Having the week just means you have first pick and anyone else who wants to fly coordinates. Weeks are traded and split as needed and as each members work schedule demands.
Works for us and gives everyone a capable plane for very modest monthly cost. Sure, if I want to spontaneously go somehere, I wish i was a sole owner. When it came to overhaul the engine, it was sure nice to have 4 others put a check on the table for the cost that exceeded the maintenance reserve.
- We happen to be a corporation that by its bylaws can issue 5 shares. Don't know why it was done as a corp rather than a LLC, it all depends on your state what is better.
- Plane is registered to the corp, all bills go to the corp which pays out of corporate funds. We dry-lease the plane from the corp and leave it 'at the tabs'.
- Hangar, Insurance, basic annual, databases are divided by 60 and paid by each member in monthly payments.
- Engine reserve, prop reserve, ongoing maintenance fund to cover oil-changes and anything exceeding the basic annual are assessed based on hobbs hours.
- Dec 18th we have an annual meeting in the FBO conference room. We do the formalities, elect officers, go through the past years finances, approve the budget for the next year, decide on upgrades, discuss operational stuff that has come up throughout the year etc. In the end, we draw numbers from a hat to set up an order and go around the table until all the weeks are picked. A 'week' starts Friday at midnight. Having the week just means you have first pick and anyone else who wants to fly coordinates. Weeks are traded and split as needed and as each members work schedule demands.
Works for us and gives everyone a capable plane for very modest monthly cost. Sure, if I want to spontaneously go somehere, I wish i was a sole owner. When it came to overhaul the engine, it was sure nice to have 4 others put a check on the table for the cost that exceeded the maintenance reserve.
To speak on the loan end of things....
When I bought into my partnership I took out a personal loan for my share. It was through lightstream.com- which I could recommend as I had a great experience with them- no prepayment penalties and great customer service. It was a unsecured loan so the other partners didn't even know about it because it didn't effect them. Basically signing on my own creditworthiness. The rates were also much better than AOPA was selling for their collateralized loans for.
I would highly recommend that route instead of trying to combine to take a loan out. Gets mighty confusing that way and puts you at risk if the others decide to default.
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Bro do you even lift
so how would you protect yourself (the other members) from someone who goes south and can't pay back their loan? wait, I guess as long as they're paying their monthly/hourly dues to the LLC, it doesn't matter. is that right?
Exactly...basically that's their problem as the bank doesn't even know what they used the $ for. It will not effect the LLC at all.
That's not completely true. If you stop paying your Lightstream loan, and Lighstream sues you and wins, it can (in most states) get a charging order, or whatever the relevant state calls it, against the LLC requiring the LLC to pay any distributions to Lighstream instead of you. This doesn't really have any affect on an asset-owning LLC that doesn't actually generate and distribute income. But it could cause a slight headache for whoever manages your LLC.
Hmm thats interesting...
Its a loan not backed by any collateral material so not sure how that works, but I'm no lawyer....
This would be equivalent to me taking out a personal credit card, charging a 100k, then not paying it back- you are saying that the credit card company can go after the LLC that I own a part of even though it is a non-related expense?
Doesn't sound right to me???
They cannot collect directly from the LLC, but to the extent you have an ownership in an LLC and that LLC makes profit or other distributions to members (like yourself), the credit card company can basically "garnish" those distributions. The charging order says "LLC, if you are going to pay any money at all to neilw2, you're going to pay it to credit card company instead." The order cannot COMPEL the LLC to pay out anything at all, but many times an LLC is structured to require equal distributions to all members. So if you're in a real business LLC that generates income and profit, and the other members want to take distributions for themselves, equal distributions usually have to be made to you (and those will get snagged by your creditor). But in an LLC that doesn't actually generate income (like the kind we're talking about here), there are never going to be distributions until the plane is sold, so it's more of an annoyance than anything. Clear as mud?
evapilotaz
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Drone airspace abuser
Not meaning to thread hi jack but Would if I was to finance an airplane and Sells Shares to said airplane.
Example the plane is $60K and I have 2 other partners and their buy in is $20 k Each. I just keep their $20k each in a bank account and if they want out I would give them their $20k Back.
Would it be better if each person comes in with $20K and purchase a plane in Cash. Monthly Dues would cover fix expenses. $20 per flying hour would go into overhaul and maintenance fund. Everyone would be responsible for their own fuel. I'm contemplating on how to make that situation work.
Example the plane is $60K and I have 2 other partners and their buy in is $20 k Each. I just keep their $20k each in a bank account and if they want out I would give them their $20k Back.
Would it be better if each person comes in with $20K and purchase a plane in Cash. Monthly Dues would cover fix expenses. $20 per flying hour would go into overhaul and maintenance fund. Everyone would be responsible for their own fuel. I'm contemplating on how to make that situation work.
If the plane is financed, the value of the share is roughly (plane-loan)/partners. Nobody in their right mind should give you 20k on a 60k financed plane.
denverpilot
Tied Down
Great point.
There's another reason not to go above five, and it's mathematical.
Sole owner, you pay 100% of the bills.
Two owners, 50%.
Three owners, 33.33%.
Four owners, 25%.
Five owners, 20%.
See between four and five how you gain very little in terms of your "share" but you've added another person vying for schedule time?
Especially if three or more of the five are all "weekend warriors" and have normal day work schedules.
Three or four is the sweet spot. From 3 to 4 your share only drops by 12%. From 4 to 5 your share only drops 5%. But, your scheduling headaches could go up by a LOT.
With 3, we think our airplane still sits a little too often. 4 would be ideal.
Other stuff we did...
We bought our hangar. It has a lease for the land, but we own the hangar itself. Technically the LLC does. Lowers the monthly and we all "pooped" a one-time dollar amount. More people, less flexibility on stuff like that. We all agreed and wrote a check and had the LLC buy it when we hit a good deal on one.
LLC can own the various "stuff" besides the airplane like the tug and stuff kept in the hangar.
Loan: Agreed that financing a co-ownership is a pain. One of our guys holds the note currently because the LLC couldn't. So there's legal paperwork to tie the LLC liability to his so he's not hosed. Still has to be a level of trust there to do that.
scottfromboston
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I have a 2007 DA-40 with three partners (I believe in an S-corp). No conflicts so far. It's not worth it for me to own individually, as don't want my spare time and $$$ to be entirely wrapped up in flying. I was also able to get into a much nicer plane than I would have been able to on my own. Time conflicts are limited. I think that the ideal number of partners is three, but it depends on how much everyone flies. Until we swapped out a member recently, myself and one other partner flew 90% of the hours on the plane (~100hr/ea). Our newest member flies a bit more and if we had 4 people really flying, it may be too much IMO.
I don't know that I can add much that hasn't been said here besides a couple of quick points:
- If you can afford sole ownership, but don't want to do the spending, and you trust people who you'd be willing to partner with, consider buying and setting up non-equity (owner) partners
- Financing a club is more painful than financing solely, but it can be done. Bear in mind that there are no individual guarantees; you're each individually on the hook for the whole amount. We have decent loan terms but, personally, if my partners wanted to pay off I'd pay mine off with a HELOC over the next couple of years. My partners (the original owners) financed through a local bank that is comfortable with aviation, and they all had ongoing relationships through the bank through several businesses each. The bank has agreed to help us finance looming engine OH if we wish; this would mean a refi of the overall loan.
- Pick your maintenance shop before buying the plane, and as a group. Be prepared to move. Maint will be your biggest shared cost, generally, and will require the most attention.
- Insurance for 4-5 people is no problem, it seems. Our rate is about 1% hull for the four of us (3 PPL-IR and 1 CFI-I) with pretty relaxed open pilot terms.
- Check the schedule for the plane if buying an existing partnership, or talk to the prospective partners about their schedules.
- When someone sells, the $$$ goes to the partnership first. This is written into our agreement but we didn't enforce it during a recent sale - mistake. We have our $$$ but no one (at least me) enjoys chasing people. I've not yet had to file a small claims motion, and don't want to.
Our biggest logistical challenges have been ongoing tracking of flight hours and billing; ShareZen is working for us, though it's pretty clunky.
I don't know that I can add much that hasn't been said here besides a couple of quick points:
- If you can afford sole ownership, but don't want to do the spending, and you trust people who you'd be willing to partner with, consider buying and setting up non-equity (owner) partners
- Financing a club is more painful than financing solely, but it can be done. Bear in mind that there are no individual guarantees; you're each individually on the hook for the whole amount. We have decent loan terms but, personally, if my partners wanted to pay off I'd pay mine off with a HELOC over the next couple of years. My partners (the original owners) financed through a local bank that is comfortable with aviation, and they all had ongoing relationships through the bank through several businesses each. The bank has agreed to help us finance looming engine OH if we wish; this would mean a refi of the overall loan.
- Pick your maintenance shop before buying the plane, and as a group. Be prepared to move. Maint will be your biggest shared cost, generally, and will require the most attention.
- Insurance for 4-5 people is no problem, it seems. Our rate is about 1% hull for the four of us (3 PPL-IR and 1 CFI-I) with pretty relaxed open pilot terms.
- Check the schedule for the plane if buying an existing partnership, or talk to the prospective partners about their schedules.
- When someone sells, the $$$ goes to the partnership first. This is written into our agreement but we didn't enforce it during a recent sale - mistake. We have our $$$ but no one (at least me) enjoys chasing people. I've not yet had to file a small claims motion, and don't want to.
Our biggest logistical challenges have been ongoing tracking of flight hours and billing; ShareZen is working for us, though it's pretty clunky.
Ravioli
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for scheduling... look at Aircraftclubs for basic calendaring and GreenFoldersOnline if you want to get fancy and hook it in to your financial application.
We have a folder in the plane where you make an entry on the log sheet of the hours out, hours in, oil added and remarks. When one page is full, you take it out and mail it to the member who keeps the books (or send a picture from your cell). Once a month everyone sends a check with the hourly maintenance and the member who keeps the books reconciles them with the outstanding hours based on the log-sheet.
Again, there are 10 other (better?) ways of doing this, but our system has worked for 25 years so far.
Ravioli
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I'm "the guy who keeps the books." I go to the airport (~20 mins away) on the last day of each month and get the usage numbers. If I can't get there on the last day of the month I send my girlfriend to do it. Not sure why she does it so gladly, maybe I'm not an ******* in real life. (nah, that's not it)
Is there a shoe store between your place and the airport ?
denverpilot
Tied Down
You sir, are the Saint and the glue of your co-ownership.
I think I'll cry the day our guy who likes doing the spreadsheet decides he's done flying.
And speaking of that: I know it's the modern era and all, but frankly, a decent spreadsheet and keeper is the best possible tracking system compared to all the websites and software gadgets out there. It's so much more flexible than anything else.
If one of us has a whim where we want something new tracked or some oddball calculation going back years, we can just ask or pop the calculation into our copy we receive monthly from our co-owner in ten seconds flat.
"Number of night hours since LED bulb upgrade to divide in bulb cost to see the per hour amortized utility of the upgrade..."? Ten seconds to that answer. (As a dumb example anyway.)
Sometimes software just gets in the way and doesn't make anything actually easier.
Emails for scheduling and a spreadsheet copy every month and we're all good and easy and the software doesn't cost us even a minute of trouble or troubleshooting. With all three of us in IT and computers in one way or another -- we know none of us feels like having software make an annoyance out of our aviation hobby.
Ravioli
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I've been called many things on PoA. Never saint. Not likely to happen again, but thank you all the same. 
scottfromboston
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Scott
before we went to sharezen we did something similar, but never really stayed consistent. Now we use the scheduler, and add tach time individually to the calendar record, which adds hour hourly fee to the running tally the system keeps. We have to manually enter payments after the fact, but it works well enough, overall.
Any questions later can be answered by recorded engine and flight data from the G1000
Any questions later can be answered by recorded engine and flight data from the G1000