Non Equity Shareholdings

[CessnaCJM]

Hi - does anyone have an example of a non equity shareholding agreement that they have been using?

Thanks

[airborne_artist]

an example of a non equity shareholding agreementEquity and share mean pretty much the same thing in this context, so the terms non-equity and shareholding are mutually exclusive.

[Justiciar]

airborne_artist is correct. Most non equity groups will in fact consist of an aircraft maintained to the standard of a public transport aircraft in which members buy a certain number of hours on terms set out in the rules of the group. This arrangement is not really a group in the more traditional sense, as you do not own a share of the aircraft, which you would have to do to legally cost share with a private category or permit aircraft.

Sometimes this route is used by owners who want to defray some of the costs of outright ownership. How legal they are in each case I wouldn't know but it seems to me the arrangement is essentially one of hire, so you cannot do it with a Permit aircraft or one which is maintained to a private category level.

The other way of doing it is to have a company with not more than 20 members. There each member holds at least 5%, which they can do even if they do not contribute 5% of the equity (value of the aircraft) when they join. This is a device to ensure that each member "owns" 5% because in reality the rules of the group do not generally allow mwmbers to sell their share for market value. Several groups I know of operate in this way, including my own Felthorpe group and the McAully Flying Group at Little Snoring.

[CessnaCJM]

What I really wanted was the wording of the agreement - if anyone has an example they could e mail me it would be great.

[Justiciar]

As airborne_artist has already said, a "non equity shareholding" is a contradiction and does not exist! I have an agreement for a conventional group I could let you have. Shareholding, on the other hand, implies a company, in which case the company's Articles of Association will be the basic governing document.

[CessnaCJM]

Justiciar - if you could e mail me the wording for the group agreement that you have that would be great - thanks

[CessnaCJM]

Just to be clear to everyone this is for the purpose of a group aircraft and my previous wording was not intended to mislead - sorry too many agreements/contracts in work!

[IO540]

As Justiciar says, a non-equity shareholding is basically pure rental (with all that that implies legally, ANO-wise, and HMRC-wise) but the renter generally buys an entitlement to a block of hours.

This hour-block purchase creates motivation for the renter to make use of the plane - otherwise you end up with a bunch of renters of whom many end up flying too little and end up with poor currency. Been there, done that :) GA is full of people who talk and talk but won't put 2p where their mouth is.

The problem to watch for anybody setting up such a scheme is that, in general, you will want to own the plane in a limited company (to protect the proprietors from possible uninsured losses caused by a renter), and the existence of a ltd co. exposes the Director(s) to an Inland Revenue (who nowadays are a bunch of crooks, targeting boats, horses and planes, in the sure knowledge that they can collect a £10k cheque easily to get off somebody's back) attack under Benefit in Kind. Been there and done that, too ;)

There are defences to a BIK attack but they are not all that attractive; one is for the Director(s) to not have any access to the plane (and preferably not even have a license); another is for all flyers to each own a share (which then makes it a traditional share-based syndicate); another is to be prepared to fight it through the General Commissioners which will cost you £10k just to instruct a tax barrister but you will probably win so long as the business has actually made a taxable profit (because as I say the present-day Revenue is a bunch of bent chancers who bank on people caving in); another is to do a full advance disclosure to the local tax inspector before the scheme is set up and get his written agreement.

It is difficult to make a taxable profit (with a decent plane; with a highly utilised old wreck you can do it OK) not least because once you introduce capital allowances (note that 25% a year writedown is the max allowed on a rented-out asset) the writedown will likely wipe out any possible operating profit. Then all you need is a bunch of dodgy renters and the proprietor suddenly finds himself a pretty significant customer of the business :)

This in turn provides the Revenue shark (who can smell blood anywhere in his operating radius and has all the honesty and integrity of a shark) with an open door. You, being advised by a cheap street corner accountant, will have followed the standard BIK guideline (http://www.hmrc.gov.uk/manuals/senew/SE21004.htm) and very properly invoiced yourself for your flying at the external-customer rate, but the crook will attack this by saying that this is invalid if the "business is not set up to make a profit". And hey ho hey ho he doesn't need any more proof because he just needs to point to your Accounts which show a persistent bottom line loss. Your only way to get out of this is to show to the Commissioners that your business plan was actually valid but you failed to make a taxable profit due to unforeseeable circumstances.

I've got a feeling that the various zero-equity groups prominently operating have either done deals with their local inspectors, or they know something which nobody I came across knows, or they are fools. Or the hour blocks sold generate a lot of revenue in themselves, which is possible.

[flybymike]

IO540 is extremely fond of the Inland Revenue. ;)

[Fake Sealion]

Just by way of clarification then :-

Is it the case that an aircraft operating under a Permit to Fly cannot be flown as PIC by anyone other than the owner(s) ?

[Fly-by-Wife]

Is it the case that an aircraft operating under a Permit to Fly cannot be flown as PIC by anyone other than the owner(s) ?

I think that anyone can fly it, but you can't hire it out, as that would require a public transport CoA.

FBW

[Jodelman]

Is it the case that an aircraft operating under a Permit to Fly cannot be flown as PIC by anyone other than the owner(s) ?

No. The permit does not specify who can fly the aircraft in normal circumstances. However, a permit to test will often specify an individual pilot or pilots who can fly the aircraft on a test flight.

[Fake Sealion]

So....its a matter of whether the Permit aircraft is hired out to other pilots?

If the arrangement is that a fixed monthly sum is paid by the pilot to the owner (whether the pilot flies or not) and the pilot then pays for fuel consumed after flying, is that defined as a "hire" ?

I'm asking as I have heard of a similiar arrangement being mooted.

[airborne_artist]

If the arrangement is that a fixed monthly sum is paid by the pilot to the owner (whether the pilot flies or not) and the pilot then pays for fuel consumed after flying, is that defined as a "hire" ?

Money given to the owner in return for use of his aircraft = hire, I'd say.