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Co-Ownership Options

jklusman

Member
After 5 years of being the sole owner of an RV-8, I'm considering co-ownership with one individual. I've read previous threads on this topic and reviewed the pertinent AOPA information. However, I'd really appreciate comments from my fellow RV aviators on their actual experiences with tenancy-in-common and LLCs. Also, it occurs to me that starting a non-profit flying club with two members might be an option. Please share your thoughts, and thanks so much.
 
If I were to go down that path, I'd start with the insurance company and an aviation lawyer.

Due to the Oplim differences of E-AB there could be more concerns of being "a club" instead of a partnership or block time lease.

No answers for ya, but some things to consider.
 
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Be careful

Do your research. Make sure that everything is spelled out and agreed to ON PAPER.

This applies even to best of friends. Unfortunately, the potential and actual costs involved in joint ownership can and usually does change people...and usually not for the better...
 
I went through this a while back with my RV-12. It's now in an LLC, with each of us equal owners of the LLC. That gives us several advantages:
  • The flexibility to add and remove owners and airplanes, if we decide to do so
  • Ease of our spouses dealing with disposing of the ownership interest if one of us croaks unexpectedly
  • Spells out in detail how things are handled -- sale, relocation, death, overhauls, upgrades, etc.
We have an operating agreement that covers how we fly, responsibilities for maintenance and cleaning, scheduling, etc. I pulled sample agreements from AOPA, a Beech forum, and one or two others. We made some minor and a few more substantial changes to meet our needs. Once we had it about where we wanted it, we brought in an attorney to do the final cleanup, look it over, bring up a few questions we hadn't thought of yet, etc. The whole thing cost us maybe 1 AMU to complete.

I think the most important part of the whole exercise was done well before we even started on the paperwork. We talked, a lot, to make sure that our personalities, expectations, and use patterns were compatible. So far we haven't had any scheduling conflicts or disagreements over maintenance or upgrades. We each contribute a fixed monthly amount to cover the hangar, insurance, and time-sensitive maintenance (transponder checks, ELT batteries, etc.). We arrived an an hourly wet rate that includes an overhaul reserve, and deduct what we spend on gas.

So far, so good. I'm flying more and spending less per hour. And I agree, make sure everything is agreed upon and spelled out on paper. If there are conflicts, they will likely not come up short term -- just later on, when memories of what was agreed upon can get fuzzy. Make sure it's all documented and signed.
 
Shared interest in an airplane (or business) is said by many to be as close a relationship as a marriage, and equally messy to dissolve. Be very VERY sure of your next move...
 
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.
 
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I went through this a while back with my RV-12. It's now in an LLC, with each of us equal owners of the LLC. That gives us several advantages:
  • The flexibility to add and remove owners and airplanes, if we decide to do so
  • Ease of our spouses dealing with disposing of the ownership interest if one of us croaks unexpectedly
  • Spells out in detail how things are handled -- sale, relocation, death, overhauls, upgrades, etc.
We have an operating agreement that covers how we fly, responsibilities for maintenance and cleaning, scheduling, etc. I pulled sample agreements from AOPA, a Beech forum, and one or two others. We made some minor and a few more substantial changes to meet our needs. Once we had it about where we wanted it, we brought in an attorney to do the final cleanup, look it over, bring up a few questions we hadn't thought of yet, etc. The whole thing cost us maybe 1 AMU to complete.

I think the most important part of the whole exercise was done well before we even started on the paperwork. We talked, a lot, to make sure that our personalities, expectations, and use patterns were compatible. So far we haven't had any scheduling conflicts or disagreements over maintenance or upgrades. We each contribute a fixed monthly amount to cover the hangar, insurance, and time-sensitive maintenance (transponder checks, ELT batteries, etc.). We arrived an an hourly wet rate that includes an overhaul reserve, and deduct what we spend on gas.

So far, so good. I'm flying more and spending less per hour. And I agree, make sure everything is agreed upon and spelled out on paper. If there are conflicts, they will likely not come up short term -- just later on, when memories of what was agreed upon can get fuzzy. Make sure it's all documented and signed.


This is exactly what I came here to say. We have an LLC / membership around our RV-10. Its just getting started, but so far so good. Have a like minded group of people and keep it small.
 
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!
 
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! :D

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.
 
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!
 
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
 
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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.
 
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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
 
did it and wouldn't do it again

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.
 
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.
 
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 ??)?
 
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! :p
 
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
 
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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!

That's the best partnership.... I have the same, but my bride likes to sit in the back and direct me to her favorite restaurant! :D
 
Thanks so much for all the input. I still haven't decided which route to take, mainly because I need to review the sales-tax consequences of the various options in my state (Indiana).
 
good luck

Good luck with getting info from Indiana. When I called them about sales tax on my -10 project, they had no clue what I was talking about...

So I guess tax doesn't get paid until it is an airplane, i.e. when I register an N number (not reserve it).

If you happen to find out something different, please post it...
 
I was in a partnership many years ago. I ended up buying my partner out. I wouldn?t recommend it. Too many stories to tell here.
Two of my golf buddies, newly minted pilots, partnered on a 172RG. One of them just did a gear up a couple weeks ago. We will see how their friendship fairs now.

That said, I was in Europe recently and visited a flying club. 24 members share three aircraft. A Piper L4, Cherokee, and a Zlin, or something like that.
I would look to see how flying clubs are set up. Might give you some guidance.
 
I have owned a couple of aircraft in a co-ownership setup. It worked out fine. I feel the most important issue to have in writing is how to get out. Being trapped when you want out is bad.
 
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 ??)?

The issue is not the ownership component, it is about the ongoing expenses (hanger, hobbs time, overhaul, insurance, etc.) and who is paying them.

The difference is that Netjets uses certified aircraft where there are no aircraft related limitations on expense reimbursement to the owner. Operators/owners can share expenses with co-owners, as well as charge fees, if set up correctly and pilots are commercial rated. With experimental aircraft regs, the owner is expressly prohibited from accepting any type of expense reimbursement or payment for the use of their aircraft or the privilege of flying in it.

The FAA says that if I bring a friend in my 172, we can share the gas expense and possibly a maint reserve (issue only is whether or not a commercial lic is required by pilot, no aircraft limitation - If I have a commercial lic, I can charge what I want). If I bring a friend in my RV-6 I cannot share any expenses with my passenger, even if I am commercial rated. Here, with the commercial exception for exp aircraft they are going a bit further with their interpretation of commercial. In the Exp world, it is related to the aircraft limitations and not necessarily the pilot limitations.

Co-owners can share expenses. However, I fear that if the proportion of ownership isn't loosely matched to the expense proportioning, the FAA will cry foul and rule that it is a violation of the FAR's or Oper Lim's (not sure where it is outlined). Clearly the poster's plan is a creative way to circumvent the regs and liekly the FAA will see it that way. It is in the FAA's rights to rule that it is an exception and doesn't apply (sadly, the FAA is given the right to interpret the FARs as they see fit). They do this all of the time. Only recourse it to go before an ALJ and argue the case. If I were hearing this case, I would side with the FAA and hence my concerns. Loop holes only work when the laws are very specific and in this case they are not. It is VERY broadly written, and therefore requires someone's interpretation and under law, that falls to the FAA, with the NTSB's judiciary oversight.

Larry
 
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