Tips on forming a partnership

[NJMac]

I've got my E owned outright. Don't need to sell or partner for the money. Engine is in great health.

 

Love the plane. Have it outfitted just the way I want. Typically love flying. Looking ahead over next 24-36 months I really won't have enough time to fly it as much as it should be. I'd like to keep the plane for traveling on fun trips with wife and pending newborn but can't see burning holes in the sky just for fun like I have been.

 

Want to bring in one, possibly 2 partners so it keeps flying routinely. Any pointers from those who have done so successfully? Anyone want to join in with me at KDAY?

 

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[Boilermonkey]

I'm part of a great 3 person partnership. Make sure you have bylaws. Have a death clause so you're estate doesn't have to negotiate...in the unfortunate event.

Make sure you have a way to not only build a maintenance reserve by hour, but also credit partners for doing maintenance. I have a template for monthly costs that does that if you want.


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[RLCarter]

I seem to remember AOPA having an article on Partnerships along with sample contracts, if your a member you might try searching there

[gsxrpilot]

I have no experience with this, but have put a lot of thought into it...

I wouldn't bring on a partner, but would rather add the person to my insurance as a named pilot (at their cost) and then work out a dry rate for them to cover the cost of the hours they use the plane. This way I still retain 100% control and can end the arrangement at anytime. I also have first dibs on the use of the plane.

Some would say that an equity partner with "skin" in the game will take better care of the plane. But I'd argue that if the person in question requires that level of incentive to properly treat the equipment, they're probably not the person I'd partner with anyway.

I'm trying to work this type of arrangement with a fellow airplane owner who has a "bush" plane. I'll name him on my insurance and get named on his policy as well. We each work out a dry rate for our respective airplanes. Now he has access to a pretty nice go fast traveling Mooney and I have access to a low and slow, big tire, bush plane. Win Win.

Just my 0.02

[larryb]

If you don’t need the money I personally would not do it. And I don’t rent my vacation house on VRBO either. But that’s just me.

[Immelman]

If you only need to exercise the airplane.... hire more help at home, and go fly it a few times a month.

...father of a 2 year old who loves airplanes...

 

[Niko182]

3 hours ago, larryb said:

If you don’t need the money I personally would not do it. And I don’t rent my vacation house on VRBO either. But that’s just me.

A vacation home is fine if you leave ot for a couple weeks. A plane not so much.

[Boilermonkey]

Partnerships can be great, and yes you must share responsibility and decisions. It might be a god send for some owners and hell for others. You can construct the contract to have an out clause for the original owner. Write down what you are willing to deal with, use an AOPA Legal template and see what partners will accept. If they don't, then don't do it.

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[Jim Peace]

Don't do it.......

[NJMac]

If you only need to exercise the airplane.... hire more help at home, and go fly it a few times a month.
...father of a 2 year old who loves airplanes...
 

I don’t have the desire to exercise the plane like I used to. It doesn’t even have to do with chores at the home either. We don’t travel a lot but when we do, I’d like to make the trip in the plane.


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[NJMac]

Don't do it.......

Care to elaborate?


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[midlifeflyer]

Sit down with someone who has experience putting one together. A professional is best. One key to a successful arrangement is thinking of how common and not-so-common issues will be handled if they come up.  Put it in writing. Most arguments are based on things which were not.

Also, think outside the box. Most folks think in terms of equal shares. Three people with 1/3. But other things can work also. For example, if you want to retain control, there is nothing wrong with, for example, keeping 60% and selling two 20% shares. 

[Bob - S50]

Sorry, this will be long.  We are 4 partners.  As others have said, put everything in writing and get everybody to sign it.  Use your imagination.  Here are some items to consider:

1.  Ours is an UNequal ownership partnership in an LLC.  Percentage of ownership is in proportion to capital invested in the LLC.  I currently own just under 50% and each of the other three own roughly 17%+/- (but not equal) each.

2.  You could also have a NON-equity partner.  That is, you own 100%.  They pay some 100% refundable deposit, say $5000.  When they decide to quit, or you decide to kick them out, they get all that back.  If they owe you money when they leave (damage, dues, hourly, don't give you the keys back so you have to have the plane re-keyed, etc) you take what they owe out of the deposit.

3.  What happens if a partner dies?  We give the estate the right to let someone inherit the share provided they meet our qualifications.  If they don't want it, we sell their share for them and then give them the money.

4.  What if someone damages the plane through negligence?  We make them pay any costs that are not covered by insurance and make them pay any increase in insurance premiums for the next 3 years.

5.  What about upgrades?  Upgrades are considered capital improvements.  When we removed our old transponder and installed the GTX345 that was a $6000 improvement.  All that money came out of our general fund.   We each contributed equally to that fund through monthly dues so we each got a $1500 increase in our capital equity.  Same with the Cies floats.  $2000 --> $500 each.  For the GFC500/G5's, one partner put in $1500, two put in $2500, the LLC has so far put in $6000, and I put in the rest.  That changes our percentage ownership.

6.  What do you do if you decide to sell the plane?  We divide the net proceeds from the sale in proportion to ownership.  We have two funds (on paper).  One is from monthly dues.  That money is divided equally among us because we contributed equally.  The other fund is from hourly charges ($30/hour dry) which are meant for future hourly related expenses such as engine OH, prop OH, magneto 500 inspections, oil changes, spark plugs, etc.).  The more money we have in that pot, the closer it is to OH, and the less we can get in a sale.  That hurts the owners in proportion to ownership, so that fund is divided in proportion to ownership.

7.  We specify the plane cannot be used as collateral for any loan.

8.  How are upgrade decisions made?  Ours is by vote.  Majority rules.  You could make yourself the sole decision maker.  We allow upgrades to be made without cost to some owners, as long as the others want to pay the cost, and the majority allows that to happen.  Ownership percentages then change in proportion to contributions.

9.  Have operating rules too.

a.  How much per hour to fly?  Wet or dry? (we use $30/hour dry)

b.  Tach time or Hobbs?  We use tach.  Using Hobbs encourages people to hurry up to get airborne and fly as fast as they can because the charge rate is the same taxiing on the ramp or flying at 45% power as it is flying at 100% power.  We want people to properly warm the engine, take as much time as they need to get ready to fly, and then fly the way they want.

c.  Runway surfaces?  We specify hard surface only, mainly because we have a J with the "inner" gear doors.

d.  Scheduling rules?  Ours is first come first served with rules for resolving conflicts.  We use a Yahoo calendar for scheduling.  In 6 years we've never had a conflict.

e.  Fuel level?  We specify parking with 30 - 35 gallons.  That's enough to fly at least 300 NM and land with an hour of gas without limiting potential payload for the next pilot.

f.  How long can it sit?  We say that if it sits 2 weeks, somebody has to go fly, weather permitting.  We have rules covering who that is and what their options are.

g.  Billing rules.  We keep a log in the plane to log beginning fuel/hours and ending fuel/hours for each flight.  At the end of the month our treasurer totals up the hours and bills us for it along with our monthly dues ($250/month).  If we bring the plane back with more fuel that it had when we got it, he gives us a credit at the current local fuel price.  If we bring it back with less, he charges us.

[midlifeflyer]

1 hour ago, Bob - S50 said:

Sorry, this will be long.  We are 4 partners.  As others have said, put everything in writing and get everybody to sign it.  Use your imagination.  Here are some items to consider:

1.  Ours is an UNequal ownership partnership in an LLC.  Percentage of ownership is in proportion to capital invested in the LLC.  I currently own just under 50% and each of the other three own roughly 17%+/- (but not equal) each.

2.  You could also have a NON-equity partner.  That is, you own 100%.  They pay some 100% refundable deposit, say $5000.  When they decide to quit, or you decide to kick them out, they get all that back.  If they owe you money when they leave (damage, dues, hourly, don't give you the keys back so you have to have the plane re-keyed, etc) you take what they owe out of the deposit.

3.  What happens if a partner dies?  We give the estate the right to let someone inherit the share provided they meet our qualifications.  If they don't want it, we sell their share for them and then give them the money.

4.  What if someone damages the plane through negligence?  We make them pay any costs that are not covered by insurance and make them pay any increase in insurance premiums for the next 3 years.

5.  What about upgrades?  Upgrades are considered capital improvements.  When we removed our old transponder and installed the GTX345 that was a $6000 improvement.  All that money came out of our general fund.   We each contributed equally to that fund through monthly dues so we each got a $1500 increase in our capital equity.  Same with the Cies floats.  $2000 --> $500 each.  For the GFC500/G5's, one partner put in $1500, two put in $2500, the LLC has so far put in $6000, and I put in the rest.  That changes our percentage ownership.

6.  What do you do if you decide to sell the plane?  We divide the net proceeds from the sale in proportion to ownership.  We have two funds (on paper).  One is from monthly dues.  That money is divided equally among us because we contributed equally.  The other fund is from hourly charges ($30/hour dry) which are meant for future hourly related expenses such as engine OH, prop OH, magneto 500 inspections, oil changes, spark plugs, etc.).  The more money we have in that pot, the closer it is to OH, and the less we can get in a sale.  That hurts the owners in proportion to ownership, so that fund is divided in proportion to ownership.

7.  We specify the plane cannot be used as collateral for any loan.

8.  How are upgrade decisions made?  Ours is by vote.  Majority rules.  You could make yourself the sole decision maker.  We allow upgrades to be made without cost to some owners, as long as the others want to pay the cost, and the majority allows that to happen.  Ownership percentages then change in proportion to contributions.

9.  Have operating rules too.

a.  How much per hour to fly?  Wet or dry? (we use $30/hour dry)

b.  Tach time or Hobbs?  We use tach.  Using Hobbs encourages people to hurry up to get airborne and fly as fast as they can because the charge rate is the same taxiing on the ramp or flying at 45% power as it is flying at 100% power.  We want people to properly warm the engine, take as much time as they need to get ready to fly, and then fly the way they want.

c.  Runway surfaces?  We specify hard surface only, mainly because we have a J with the "inner" gear doors.

d.  Scheduling rules?  Ours is first come first served with rules for resolving conflicts.  We use a Yahoo calendar for scheduling.  In 6 years we've never had a conflict.

e.  Fuel level?  We specify parking with 30 - 35 gallons.  That's enough to fly at least 300 NM and land with an hour of gas without limiting potential payload for the next pilot.

f.  How long can it sit?  We say that if it sits 2 weeks, somebody has to go fly, weather permitting.  We have rules covering who that is and what their options are.

g.  Billing rules.  We keep a log in the plane to log beginning fuel/hours and ending fuel/hours for each flight.  At the end of the month our treasurer totals up the hours and bills us for it along with our monthly dues ($250/month).  If we bring the plane back with more fuel that it had when we got it, he gives us a credit at the current local fuel price.  If we bring it back with less, he charges us.

Excellent post covering many of the things which need to be considered up front. 

#8 is a bigger deal than many think. It's probably what leads some to choose remaining in control of selling non-equity interests. Absent that, I've seen a number of different ways folks have handled it, including allowing minority members to do the upgrade but with a couple of conditions, including conditions which prevent them from using upgrade to gain control.

[Boilermonkey]

Here's a link to a Google Sheet.  Each month I fill this out and send to my partners and then we make payments to a joint account that we pay expenses from as well as build up as a maintenance reserve.  Each month I copy the existing tab/sheet and create a new one (that way we have a record going back for years).  In the formulas there is a $35 multiplier for each hour flown representing the maintenance reserve we have agreed on.  You will want to modify that for whatever you need.  For us we calculated the cost of the engine and prop overhaul at 2000 hours as well as other items that will be replaced and wear out overtime.

You'll see there is a section for time spent working on the airplane by the partners.  So if someone changes the oil, they get a credit for doing the work.  That way we don't have an inequity of someone doing all the work while other just fly...that's ok, but you get paid.

Let me know if you have any questions.   

https://docs.google.com/spreadsheets/d/15LEpANEFDw1HsT0aJxV03uQt1abQj1CSFC3lwMnxK6U/edit?usp=sharing