From a strictly legal standpoint, which risks are most commonly underestimated when individuals enter into shared aircraft ownership arrangements?
The risks that often get underestimated are usually relational and regulatory. Most disputes don’t start with the airplane, they start with assumptions. For example, one owner thinks holidays rotate, the other assumes priority because they own 60%. Or one owner pays the crew and reallocates costs informally, not realizing that if it’s not done properly under Part 91, it can result in regulatory violations and even trigger exclusions under their insurance policy. We see liability surprises all the time, such as one owner assuming they’re insulated, only to learn they’re exposed because the structure wasn’t set up correctly. And on the tax side, one co-owner may expect full bonus depreciation, while another doesn’t qualify based on how they use the aircraft. Shared ownership can work exceptionally well, but only when it’s structured carefully from day one.
What legal structures are most appropriate for shared ownership, and how should governance, liability exposure, and beneficial ownership be formally defined between co-owners?
Owners often believe a LLC, taxed as a partnership, to own the aircraft is the right answer because it offers liability protection and that’s what they’re most familiar with. But it’s not the only option, nor the best in many cases. Many owners prefer a tenants-in-common (TIC) structure, particularly where they want to maintain direct ownership to preserve individual tax depreciation goals, especially when non-business usage percentages differ between co-owners.
TIC structures are also frequently paired with the FAA’s Joint Ownership rules under Part 91.501, where one owner employs the crew and allocates operating costs proportionately. That can work well, but it must stay strictly within the regulatory framework to avoid inadvertently creating a charter operation or tripping other FAA regulations.
Regardless of structure, issues of governance and liability exposure, among others, can easily be dealt with in a co-ownership agreement that specifies decision-making authority, voting thresholds, operational control, indemnification and insurance requirements, and each party’s precise economic and ownership interests. The agreement should also address buy-out/sale mechanics so co-owners are clear on the pathway to exit if things don’t work out.
How should usage rights, cost allocation, capital contributions, and voting authority be documented to ensure enforceability and reduce the likelihood of dispute?
Usage rights should define scheduling mechanics, whether based on ownership percentage, block hours, or a rotation system. Cost allocation should distinguish between fixed and variable expenses, with formulas that address hourly costs and repositioning flights. Capital contributions and future capital calls should include defined triggers, cure periods, and consequences for non-payment. We often recommend voting authority be tiered to make it easier on the co-owners, with routine matters by a single co-owner (i.e., Aircraft manager) or by a majority, and major decisions by supermajority or unanimous consent. Clarity prevents conflict.
What specific provisions should be included in a legally binding operating or shareholder agreement to address scheduling priority, maintenance downtime, and unexpected financial obligations?
The co-owner agreement should anticipate friction points. Scheduling priority needs objective rules for peak periods and a defined method for resolving conflicts. Maintenance downtime should address how loss of use is allocated and how unplanned events, such as ADs, are handled. Unexpected financial obligations are most often where things go sideways quick, and should be governed by clear capital call procedures, including notice periods, cure timelines, and remedies for default, to include buy-out clauses.
Why is it legally critical to define exit mechanisms before acquisition, and what clauses should co-owners agree upon in advance regarding valuation, buy-sell rights, forced sale triggers, or default scenarios?
Exit provisions are essential because there are so many variables that could affect the long-term. Aircraft values fluctuate and life circumstances change. It’s far easier to negotiate exit terms when everyone is aligned than when one owner needs liquidity. Agreements should define valuation methodology, buy-sell mechanics, rights of first refusal, and forced sale triggers such as insolvency or material default if one co-owner is not contributing. Default remedies, including discounted buyouts or drag-along rights, should also be clear. There’s no better protection to long-term stability than meaningful exit planning.
How do regulatory compliance obligations and tax treatment differ in shared ownership compared to sole ownership, particularly when co-owners reside in different jurisdictions or operate internationally?
Shared ownership definitely adds complexity. On the regulatory side, entities with no other business purpose but to own the aircraft cannot legally operate the aircraft. Also, depending on structure, if one co-owner starts charging in a way that looks like charter revenue, the FAA issue doesn’t just affect that owner— it can ground the entire operation. On the tax side, one co-owner might qualify for 100% bonus depreciation because the aircraft is used in their operating business, while another may be limited because their use is primarily personal. That’s a huge issue for partnerships, where one co-owner’s personal use can cause the partnership to suffer depreciation recapture. Different co-owners may trigger sales or use tax based on where the aircraft is hangered or used; as well as property tax in a different states. Add an international owner, and you may be dealing with VAT exposure, withholding, or even FAA citizenship limits. Same airplane, same ownership percentage, but very different outcomes.
At what stage in the acquisition process should aviation legal counsel be engaged to ensure proper structuring, regulatory compliance, and risk mitigation?
Aviation counsel should be engaged early — ideally before a letter of intent is signed. Structure drives tax treatment, legal documents needed to support operations, registration strategy, governance, financing, and liability allocation. In shared ownership arrangements especially, it is significantly less expensive to structure correctly at the outset than to resolve problems after closing.
Originally featured in this AvBuyer article on shared aircraft ownership.