Partnership contract/application

[JOhnH]

We are considering taking a partner to help defray some expenses on the Bonanza. We prefer one partner (+us), but may open it up to 2 partners.

Does anyone have any suggestions on a contract or an application. I want to make sure the person has the resources to hold up their end and that they have the same view of ownership that we have. And I'd like to spell out how various issues will be handled before they become a problem.

Copies of existing contracts or agreements that seem to be working well would be appreciated.

 

[AggieMike88]

A decent place to start is the AOPA sample co-owner agreement

http://www.aopa.org/Pilot-Resources...ng-Clubs-Part-1/Sample-Co-Ownership-Agreement

I went through this many years ago with 2 others, and while we never got beyond the tire kicking phase, the review of this document and suggested edits created some really solid discussions toward a document that all would be happy with.

And we did cover various extra things such as member departure, solvency, death, estates, divorce, bankruptcy, loss of medical. It was our version of the Cooper Roommate Agreement.

Your idea of getting on to paper all of the stressful/emotional circumstances and what can/would be done when that happens is a smart idea.

Whatever draft you develop, also spend some bucks on a good aviation attorney to review the document. They should already be familiar with contract law in your state, and adding the aviation element will help ensure the document stands up to both versions of scrutiny.

 

[MauleSkinner]

I was once told that the most important part of an airplane partnership agreement is an "exit strategy". You need the ability to not be held out to dry if the partner can't/won't pay necessary expenses but is still determined not to liquidate the airplane.

 

[frfly172]

Go to aopa ,they have a good bit of info ,on partnerships.

 

[JOhnH]

A decent place to start is the AOPA sample co-owner agreement

http://www.aopa.org/Pilot-Resources...ng-Clubs-Part-1/Sample-Co-Ownership-Agreement

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Whatever draft you develop, also spend some bucks on a good aviation attorney to review the document. They should already be familiar with contract law in your state, and adding the aviation element will help ensure the document stands up to both versions of scrutiny.

Wow, that sure was a thorough example. I would certainly get a lawyer before I signed that, or presented that to someone else for signing.

Are there any good aviation lawyers on POA that work in Florida?

 

[JoseCuervo]

Handshake.

If you don't trust them enough to have a handshake agreement, you don't want them as a partner.

 

[JOhnH]

Handshake.

If you don't trust them enough to have a handshake agreement, you don't want them as a partner.

There is a lot to be said for that.

But I have seen trust come back to bite you in the ass too many times, especially when a fair amount of money is involved. A handshake as far as scheduling, maintenance and upgrades is probably a good thing. But when it comes time to dissolve the partnership, THAT needs to be agreed on in advance.

 

[AggieMike88]

Wow, that sure was a thorough example. I would certainly get a lawyer before I signed that, or presented that to someone else for signing.

No fault in being extremely thorough.

And I agree both parties should work with appropriate counsel. As much as the two or three of ya want to be good friends, this is a business deal and all parties need to have the mechanism to handle things when the bad emotions fire up and smart reasoning dwindles.

 

[JoseCuervo]

No fault in being extremely thorough.

And I agree both parties should work with appropriate counsel. As much as the two or three of ya want to be good friends, this is a business deal and all parties need to have the mechanism to handle things when the bad emotions fire up and smart reasoning dwindles.

Serious question, why would you want to be a partner with someone with that potential?

If the document needs attorney's on both sides to advise and counsel, that really is a partnership to avoid. At most, a 1 page agreement on how things will be handled could cover it all.

 

[JOhnH]

Serious question, why would you want to be a partner with someone with that potential?

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Absolutely everyone has that potential. And in my case, I would have to reach out to people I don't know to find a partner. How would I know what their potential is?

In medicine, we say "if it isn't written down, it didn't happen".

I would change that for business to "if it isn't written down, it won't happen".

 

[JoseCuervo]

Absolutely everyone has that potential. And in my case, I would have to reach out to people I don't know to find a partner. How would I know what their potential is?

In medicine, we say "if it isn't written down, it didn't happen".

I would change that for business to "if it isn't written down, it won't happen".

Just looking at the linked AOPA agreement.....

The aircraft shall not be landed at any airport more than 150 nautical miles from the home base unless an appropriate IFR or VFR flight plan has been filed. Landings at airstrips of less than _____ usable feet in length shall not be attempted. Landings at other than paved or concrete runways shall not be attempted without the assumption of responsibility by the operating co-owner of any resulting damage to the propeller and/or other parts of the aircraft.

It looks like it was written by Hertz Rental Car.


You can do a lot of business with a handshake, and it gets done. You can also do a 1 page document that captures the items that are important if you need.

Your OP actually says you want proof of the new person's financial capability. On a simple GA plane, I would likely be offended if you want my financial statements.

Everybody does what makes them comfortable, and I have written hundreds (if not 1000's) of contracts, and for this task, there are simpler approaches.

 

[JOhnH]

I do agree that a proper contract will be closer to your 1 page than the 18 page AOPA example. But to be honest, I don't want a partner that will get his panties in a wad because I want to make sure he is financially able to hold up his end; unless we both know each other real well.

Just looking at the linked AOPA agreement.....



It looks like it was written by Hertz Rental Car.


You can do a lot of business with a handshake, and it gets done. You can also do a 1 page document that captures the items that are important if you need.

Your OP actually says you want proof of the new person's financial capability. On a simple GA plane, I would likely be offended if you want my financial statements.

Everybody does what makes them comfortable, and I have written hundreds (if not 1000's) of contracts, and for this task, there are simpler approaches.

 

[JimNtexas]

I think the AOPA document was authored to include lots of paragraphs, knowing that probably no real co-owership entity would use them all.

For example, the flight plan clause is clearly ridiculous.

Also I don't think you would want hard dollar amounts written into the ownership agreement, since they are subject to change at any time.

I couldn't figure out what the heck all that mumbo-jumbo about fuel actually meant.

Our ownership club members buy and sell share of the corporate entity that owns the airplanes at whatever price the market will bear. That seems simpler than maintaining individual capital accounts.

Four meetings a year seems like a lot.

I'm not sure about that 'damage due to faulty technique' clause, because who decides about 'technique'.

If a co-owner needs to sell a share, the partners should have some kind of veto power over the potential buyer.

Despite all these nits, the AOPA document is as good a place to start as any if you're thinking about a partnership or ownership club.

 

[midlifeflyer]

Most handshake partnerships probably do well. But unforseen problems can arise. I wonder how many ran into difficulties when the recession harmed the income and assets of one or more of a group. And I wonder how many if those who were affected started action in a way his partners never expected.

I was involved in one. It was nasty. And it would have been very expensive in both time and money except for one thing. The group decided at the beginning that a written agreement was not a sign of lack of trust, but a sign of intelligent people doing business together. Made the process of excluding the problem member and continuing on almost painless.

I also agree with Jim on the AOPA sample. Good as a starting point to discuss questions that need to be considered and addressed, but using it as is is not that great an idea.

 

[Ravioli]

Some thoughts for the "handshake" crowd:

1) You don't need any lawyers to get married, but over 50% of couples need them to get unmarried.

2) The wonderful person you're discussing partnership with today may have a very different disposition when you're discussing maintenance or exiting the partnership.

3) There's an old joke: "If you want to lose a friend, buy a boat with them" I think boat and plane can be interchanged.

 

[AggieMike88]

Serious question, why would you want to be a partner with someone with that potential?

If the document needs attorney's on both sides to advise and counsel, that really is a partnership to avoid. At most, a 1 page agreement on how things will be handled could cover it all.

I'll add my +1 to what others are saying... you hope, plan, and work for never getting to that point (like a marriage). But having all of the big nasty things agreed to in advance is also an "insurance layer" so if the situation goes completely off the rails, all parties are aware of how the issue will be addressed and hopefully resolved. And the heated emotional "that's not what you said's" are minimized.

Again, much like a marriage where you hold some significant assets (personal, business, real estate) and the one you are marrying is coming in with not much at all. You desire for this to be "until death do you part". But if it goes to divorce, then the "this is whats going to happen" is already laid out and the influence of emotional pain on the process is kept to a minimum.


I do agree the AOPA document is a bit over the top on many topics. And the three of us I mentioned earlier removed many of the paragraphs and clauses. We also changed many so it fit who we were and how we planned on using the aircraft. But those paragraphs we said "Not going to do" or "does not apply" created some good discussions on a closely similar issue. And some of those became something we wrote in.


Finally, John has a very nice Bonanza. I think it's smart for him to go as detailed as he feels he needs to to protect it and himself.

 

[OkieAviator]

You can do a lot of business with a handshake, and it gets done. You can also do a 1 page document that captures the items that are important if you need.

Your OP actually says you want proof of the new person's financial capability. On a simple GA plane, I would likely be offended if you want my financial statements.

Everybody does what makes them comfortable, and I have written hundreds (if not 1000's) of contracts, and for this task, there are simpler approaches.

Handshake deals need to be reinforced with legal documents to protect both parties. As a contract savvy individual you should recognize this and it's importance on a dealing of this nature. If you've worked '1000's' of contracts you should recognize this.

To the OP I based my current partnership off of AOPAs and a few others partnership agreements. You can go through and pick the articles that apply to you and change up the ones that don't fit your need. Financial stability for example, we didn't look at each other's bank statements, nor would you need to. To mitigate this we just stated that there will be no lean held against the plane. If someone wants to finance their buy in, they can do it with another method. We also have articles on how to deal with the valuation, or death of a partner... or death of both partners. ect. To cover all basis thing of everything that can happen and plan accordingly.

 

[JoseCuervo]

Most handshake partnerships probably do well. But unforseen problems can arise. I wonder how many ran into difficulties when the recession harmed the income and assets of one or more of a group. And I wonder how many if those who were affected started action in a way his partners never expected.

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What happens to the partnership if somebody's financial situation would deteriorate? Would that cause a default action? Void the contract?

Things happen, and there are risks involved with partners.

 

[JoseCuervo]

Handshake deals need to be reinforced with legal documents to protect both parties. As a contract savvy individual you should recognize this and it's importance on a dealing of this nature. If you've worked '1000's' of contracts you should recognize this.

.

And a lot of those contracts licensed Intellectual Property, yes, they needed to be written.

A partner and I are about to sign a $600k per year, 5 year contract with a local company. We will have fairly simple contract with the company buying our product.

My partner and I have no written agreement on the enterprise that will fulfill the contract. Just a handshake, and a bunch of beers.

 

[AggieMike88]

My partner and I have no written agreement on the enterprise that will fulfill the contract. Just a handshake, and a bunch of beers.

Question for ya... Say one of these stamps you out of existance

Does anything exist on paper to help your survivors get 50% of the FMV for the company and prevent another party from messing them over?

 

[OkieAviator]

What happens to the partnership if somebody's financial situation would deteriorate? Would that cause a default action? Void the contract?

Things happen, and there are risks involved with partners.

In mine, I have first right of refusal to buy the share at a price determined each annual.

And a lot of those contracts licensed Intellectual Property, yes, they needed to be written.

A partner and I are about to sign a $600k per year, 5 year contract with a local company. We will have fairly simple contract with the company buying our product.

My partner and I have no written agreement on the enterprise that will fulfill the contract. Just a handshake, and a bunch of beers.

I work both professional service as well as product based contracts. Each has a specific set of requirements, terms and agreements as well as quality assurance parameters and some sort of success metric. There is absolutely no confusion on what is expected. If fact we have a completely different legal partner and group of contract managers that make sure of this. Doesn't matter if it's $20K or $200M.

 

[asgcpa]

A decent place to start is the AOPA sample co-owner agreement

http://www.aopa.org/Pilot-Resources...ng-Clubs-Part-1/Sample-Co-Ownership-Agreement

I went through this many years ago with 2 others, and while we never got beyond the tire kicking phase, the review of this document and suggested edits created some really solid discussions toward a document that all would be happy with.

And we did cover various extra things such as member departure, solvency, death, estates, divorce, bankruptcy, loss of medical. It was our version of the Cooper Roommate Agreement.

Your idea of getting on to paper all of the stressful/emotional circumstances and what can/would be done when that happens is a smart idea.

Whatever draft you develop, also spend some bucks on a good aviation attorney to review the document. They should already be familiar with contract law in your state, and adding the aviation element will help ensure the document stands up to both versions of scrutiny.

I set up an llc and am going through it now. If you pay $99 for AOPA legal prem plus, you get 2 free hours of aviation attorney. Bret can stack hours. There is 4 of us so it is 8 free hours. Just a suggestion....

 

[midlifeflyer]

What happens to the partnership if somebody's financial situation would deteriorate? Would that cause a default action? Void the contract?

Things happen, and there are risks involved with partners.

A partnership is a contract. So it depends on what it says in terms of "deterioration". Beyond that, if a partner fails to meet his obligations to the partnership, the answer in the absence of an agreement, depends on state partnership law. I would expect most states would allow exclusion of a partner in case obligations are not met.

What tends to be the difference in the case of an aircraft partnership is that it involves use of an asset rather than a business enterprise.

 

[JoseCuervo]

A partnership is a contract. So it depends on what it says in terms of "deterioration". Beyond that, if a partner fails to meet his obligations to the partnership, the answer in the absence of an agreement, depends on state partnership law. I would expect most states would allow exclusion of a partner in case obligations are not met.

What tends to be the difference in the case of an aircraft partnership is that it involves use of an asset rather than a business enterprise.

Even if your state allows you to exclude the partner, I am betting the judge will require you to compensate him as you exclude him.

The only contracts I have ever seen with some sort of financial stability clause usually have a "if party files for Bankruptcy under Chapter x, x, or X" type of thing, the filing party defaults and the remedy is ___________________

But, the above reference was just that they had to maintain some sort of wealth, for no particular reason, and, I was curious if somebody has a default clause because somebody is no longer a millionaire.????

It had nothing to do with meeting partnership obligations, as posed above, but was just a net worth type of benchmark.

 

[JoseCuervo]

In mine, I have first right of refusal to buy the share at a price determined each annual.
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Easy way is always 1 partner sets the price, the other partner decides which partner buys the other one out.

Just like having 2 kids split a piece of pie. One cuts the piece in two, the other one decides which piece each kid gets.

 

[JoseCuervo]

Question for ya... Say one of these stamps you out of existance

Does anything exist on paper to help your survivors get 50% of the FMV for the company and prevent another party from messing them over?

Nope.

And, if I ever felt that was needed, I would end the partnership. I would manage the entity in the same manner for his family/heirs as he would for mine.

 

[midlifeflyer]

Even if your state allows you to exclude the partner, I am betting the judge will require you to compensate him as you exclude him.

The only contracts I have ever seen with some sort of financial stability clause usually have a "if party files for Bankruptcy under Chapter x, x, or X" type of thing, the filing party defaults and the remedy is ___________________

But, the above reference was just that they had to maintain some sort of wealth, for no particular reason, and, I was curious if somebody has a default clause because somebody is no longer a millionaire.????

It had nothing to do with meeting partnership obligations, as posed above, but was just a net worth type of benchmark.

I haven't seen one in a co-ownership agreement. Maybe they exist especially in some higher end deals but I would doubt too many people would be willing to agree to share personal financial information about themselves with a group owning a light aircraft.

The bankruptcy clause we see in many of these agreements is only in part about financial stability. It's usually more about control - to avoid the acquisition of voting rights by a bankruptcy trustee or creditor. That's also related to your point about compensation to the expelled co-owner. In most of these situations, there are two bundles of ownership rights, control and economic. You are right that the law will generally not permit the complete forfeiture of someone's financial share because of a lesser breach.

 

[midlifeflyer]

Easy way is always 1 partner sets the price, the other partner decides which partner buys the other one out.

Just like having 2 kids split a piece of pie. One cuts the piece in two, the other one decides which piece each kid gets.

Some people prefer to deal with those questions while dealing with the stresses of breaking up (not to mention the stresses associated with whatever event led to the breakup). Others prefer to deal with them up front, long before there is a problem.

It's a bit like emergencies in an airplane. We hope we never have to use them but I'd prefer to have considered what to do when in the nice environment of training than for the very first time when the emergency is taking place. YMMV.