I'm partnering with a good friend on a Cardinal and trying to figure out the best way to do it. Keep in mind I'm a student pilot. We have done several deals with a handshake, but pretty sure that's not the best way to deal with a plane. I have already paid for the hangar for the next year and a small portion of my half of the plane. There are a few things with maintenance he said he would take care of, I'm sure those should be listed. Our goals with the plane are similar. I'm looking to build hours and start on IFR as soon as I'm done with PPL. He said he can step up to another plane when I'm ready and we have similar tastes for the next plane (both want true 4 seater). Should we also go the LLC route?
Partnership contract
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AggieMike88
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The original "I don't know it all" of aviation.
Call the AOPA Pilot Information Center and have their partnership template sent to you.
It will give you both a starting point for various discussions.
Essentially you're creating a document to establish that covers what is and isn't permitted, what are normal and prohibited actions/operations, and what will happen if things go completely off of the rails, including death of one of the partners.
While a chore to do for two guys who are getting along very well today, it's an invaluable document when the honeymoon is over and it's time for the nasty divorce.
And spend some money on an aviation attorney in your area. This will be money well spent to ensure all parts of the agreement are valid in the state you're based at.
It will give you both a starting point for various discussions.
Essentially you're creating a document to establish that covers what is and isn't permitted, what are normal and prohibited actions/operations, and what will happen if things go completely off of the rails, including death of one of the partners.
While a chore to do for two guys who are getting along very well today, it's an invaluable document when the honeymoon is over and it's time for the nasty divorce.
And spend some money on an aviation attorney in your area. This will be money well spent to ensure all parts of the agreement are valid in the state you're based at.
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poadeleted20
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You definitely want to go with some sort of corporate structure to shield yourself from any possible negligence on your co-owner's part. Beyond that, you need to sit down and figure out how you want everything to work, and then get an attorney familiar with both aviation and your state's laws to make sure whatever agreement the two of you sign does what you think it will do. The AOPA Guide to Multiple Ownership should give you a lot of good ideas on what issues to address.
Remember, the partnership agreement is a pre-nup. If you continue to be 'good friends', neither of you will ever pull it out of the dusty envelope. If you have to pull it out of the envelope, you are already in trouble.
Yes, you want to have a corporate, LLC or trust structure that owns the plane. Which one, depends on your state, your willingess to do some paperwork and possible tax objectives you may have with the plane.
When writing your bylaws (for a corp), operating agreement (for a LLC) or the contract that governs your trust, make sure you have reasonable exit provisions. Who can call for the partnership to be dissolved, what happens to the asset, is there are mechanism to establish a valuation on the plane, can your 'partner' sell his share to a third party, do you have a right of refusal on the person he sells his share to etc.
Yes, you want to have a corporate, LLC or trust structure that owns the plane. Which one, depends on your state, your willingess to do some paperwork and possible tax objectives you may have with the plane.
When writing your bylaws (for a corp), operating agreement (for a LLC) or the contract that governs your trust, make sure you have reasonable exit provisions. Who can call for the partnership to be dissolved, what happens to the asset, is there are mechanism to establish a valuation on the plane, can your 'partner' sell his share to a third party, do you have a right of refusal on the person he sells his share to etc.
Hadn't thought about that. Thanks
nddons
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In general you will have much greater flexibility with an LLC than with a corporation. Of course, LLC laws vary by state, so follow ASG's advice.
gismo
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A good partnership agreement will detail the cost sharing, opportunity sharing, and exit strategy among other things.
My favorite approach to opportunity sharing is assigning each partner a time slice on a rotating basis that grants the right to act as sole owner for usage. E.G. each partner gets one week where they can use the plane anytime without checking with the other partners. If any other partner want's to use it when it's not their week they have to ask permission which can be refused for any reason. IMO this comes closest to sole ownership WRT usage.
An exit strategy that I used when I was in a partnership was based on two main principles. One was that the party wishing to exit had to pay a premium to the other partner(s) to offset the "cost" of restructuring. In our case this was 10% of the asset value. The other principle was that to establish a fair price for the asset value the exiting partner had to come up with the number and the other(s) had the option of buying or selling at that price (this works better when there are only two partners).
My favorite approach to opportunity sharing is assigning each partner a time slice on a rotating basis that grants the right to act as sole owner for usage. E.G. each partner gets one week where they can use the plane anytime without checking with the other partners. If any other partner want's to use it when it's not their week they have to ask permission which can be refused for any reason. IMO this comes closest to sole ownership WRT usage.
An exit strategy that I used when I was in a partnership was based on two main principles. One was that the party wishing to exit had to pay a premium to the other partner(s) to offset the "cost" of restructuring. In our case this was 10% of the asset value. The other principle was that to establish a fair price for the asset value the exiting partner had to come up with the number and the other(s) had the option of buying or selling at that price (this works better when there are only two partners).
gismo
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IIRC, a corporation requires a fair amount of effort to keep it "legitimate".
nddons
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Very true, especially in terms of having tax-free contributions into the LLC, tax-free distributions, disproportionate distributions, loans, etc.
The only difference is that you have to hold a annual meeting and keep minutes of the meeting which you adopt at the next years meeting. BOTH a corp and a LLC have to file annual reports. The fees and if applicable franchise tax obligations to maintain either are different. whether a llc or trust affords the same liability isolation is a matter of law and more Important precedent in the respective state.