With the high cost of ownership it makes sense, and is sometimes necessary, to have multiple owners sharing expenses. These expenses include acquisition cost, upgrades to avionics, cosmetics (a new paint job, not eyeliner!), and all the other items that make airplane ownership so much fun. I remember reading an article some time ago in which the author said he had come to the conclusion that you should have two airplanes. That way you have something to fly when you pick up the one thats in the shop. I have a friend that might say, even two is not enough.
Pick Your Partners Well
I wont talk much about ensuring your partners are compatible, there are books on that subject. I will say that it doesnt matter how "airtight" the lawyer draws up the agreement, its really no better than the people you partner with. A partnership, corporation, or LLC (Limited Liability Company) is much like a marriage, so be careful who you pick. In many instances you will be using the airplane for fun, so try to keep it that way. The more people involved, the more likely there will be strife. Though the cost goes down with each additional party, the headaches somehow go up exponentially.
Co-owners must be able to agree on several items: 1) Risk taking; 2) Aircraft availability; 3) Care and courtesy; and 4) Maintenance and Repair. If your partner(s) are the type that land on dirt runways or fly too near thunderstorms, you may feel uncomfortable when they fly "your" airplane. How you schedule flying time is an often overlooked issue. If you cant fly the airplane when you want to because someone else has it, you wont be happy, and might even be better off renting. If the last person to use the airplane left their childrens raisins all over the back seats, pop cans on the floor, and the mags on you will resent them as partners. You either wont fly, or youll get out. Finally, if you are the type of person that wants it fixed right, but you partner(s) are not willing to put up the funds, you wont be happy with the arrangement. Dont think you will be compatible just because you are all pilots. Take care in choosing your partners.
What Type of Ownership?
Ive been asked a hundred times what type of ownership is best for an airplane. When more than one person is involved the question is rather limited. Its either a partnership, limited partnership, corporation, or limited liability company. There are various reasons for each. So what type of ownership is best? It depends on the amount of money invested, the perceived risk, the intended use of the aircraft, and the degree of protection desired.
The main reason for corporate or LLC ownership over a partnership is the concept of limiting liability. In general, if you are an officer or shareholder of a corporation your liability is limited to the assets of the corporation. If you are a member in a LLC, it is generally limited to the value of your initial investment. Incidentally, creditors are not able to just "go get" your assets in either a partnership or LLC. Instead they are given a "charging order," which attaches to your "interest." In an LLC however, the charging order is issued charging your interest with the payment of a certain amount. After that the judgement creditor "has no more rights than those to which an assignee of the members limited liability company interest would be entitled to." On the other hand, if you are a partner your liability is unlimited, and your personal assets can be at risk. It is also not unheard of for one partner to obligate the others without their knowledge.
Youll notice I used the word "generally" above when talking about liability. Everyone must remember that you cannot escape liability for your own negligent or intentional acts. What is negligent has been the discussion of more books than I can count, which means more than ten. It is generally an action that someone would not have done if they were being reasonable. For example, is it reasonable to take off in a 50 knot direct crosswind in your Cessna 182? Probably not. If you had an accident, would it be determined negligence? Probably so, and it might also be intentional, which could cause you some problems with your insurance coverage as well. This is why I generally do not think a sole owner should incorporate just to limit his or her liability. The odds of you doing something that would not be termed negligent in an accident are small, baring some type of mechanical failure.
If you have more than one other owner and you want to try to limit your liability, a corporation or LLC is probably the way to go. If you are going to do rental or lease-back it makes even more sense. However, no ownership arrangement will, or should, take the place of a good insurance policy! In New Mexico, as in most other states, its really not too difficult to set up a corporation or LLC. You must follow the statutory requirements and file the documents with the Public Regulatory Commission, along with the filing fee. Then keep the annual filings current, including tax returns; keep minutes of all major decisions; and treat the airplane, bank accounts, and other corporate items as corporate assets. This will keep some lawyer from arguing that the corporation was merely a sham and should not provide any protection. Dont buy groceries from the corporate account.
The other major form of ownership, the partnership, is based on a partnership agreement. This agreement is simply your understanding with your other partners put into writing. The partnership is very similar to a LLC, but the LLC affords the protection of a corporation, as indicated above. All of these entities should clearly set out your understanding about as many concerns as possible. They should state how major repairs and other expenditures are to be dealt with. They should address the issue of what happens when one owner wants to leave, or dies. Insurance issues should be addressed, as should pilot currency. Also consider how a major uninsured expense caused by one owner will be handled, and resolving significant disputes between the parties. The list goes on and on.
There is some very good information on the AOPA members only Web site discussing ownership entities in more detail, and as always you can talk to someone knowledgeable in the area. The very best way to keep the peace in a partnership is to know your partners and make sure you address the main issues up front. Dont be so excited to get into the "airplane of your dreams" that you forget common sense. Good luck and enjoy the experience!
|The purpose of this article is informational only, and is not intended in any way, to establish an attorney- client relationship. Before relying on anything contained herein you should consult with an attorney, as the facts and circumstances of each matter vary widely as does the law, which can also vary significantly from state to state. Something that may appear simple, usually is not and may have many more issues.
Duane Keating is an attorney in Albuquerque, New Mexico where he practices law in the areas of FAA and NTSB Certificate and Medical enforcement Actions, Elder Law, Medicare/Medicaid and Estate Planning, Business and Real Estate Law. He has been in practice over 20 years, is a member of the NTSB Bar Association, the Lawyer Pilots Bar Association and is an AOPA Panel Attorney. He holds a Commercial License with ASEL, AMEL and Instrument ratings and is a CFI - Instrument and Multi-Engine. He can be reached at 505-332-4657 or by writing to him at 1000 Eubank, NE, Suite B, Albuquerque, NM 87112.