Determine a co-ownership structure. You can choose from among several possibilities including joint ownership, a simple partnership, an LLC, or a corporation. Often an LLC (Limited Liability Corporation) works best for yacht partnerships. A sort of hybrid between a partnership and a corporation, an LLC offers flexibility, limited liability, and tax advantages to partners without being overly cumbersome or expensive to administer.
Spell out the details of the boat and all of the equipment included in the agreement. List the manufacturer, model, size, and serial numbers of everything, including engines, dinghy, and navigation equipment. Also list everything on the boat that is not included as part of the agreement like bikes, linens, binoculars, or other personal equipment or gear.
Determine how to document and pay expenses. It’s important to spell out, in detail, how regular fixed expenses like moorage, insurance, scheduled maintenance, and taxes will be collected and paid. Likewise, spell out in detail how you will deal with ongoing operating expenses like fuel, oil, oil changes, maintenance, repairs, routine haul out, and home port water, electricity, and internet. Will the owners share these costs equally, or proportionally, according to their use? Will partners do their own maintenance, or will the partnership use a certified marine mechanic to do routine maintenance? If everyone is clear in advance, nobody gets surprised or caught short.
Determine how to schedule time on the yacht. How do you determine who gets the boat and when? Depending on the number of partners involved, you might want to divide the year into two-, three-, or four-week blocks, allowing each owner to choose one or two primary and one or two secondary blocks of time during the year. All it takes is a commitment to communication, flexibility, and cooperation. There are online calendars and software solutions that can help with scheduling, as well as yacht management services that will gladly help you work out your scheduling, for a fee.
Determine operational limits. What is the cruising limit for the yacht? How far from the home port may partners take it? Your insurance policy will have an impact on the answers to those questions. Who is allowed to operate the boat or take it out? Can a partner or co-owner “lend” his time to a relative or friend? What qualifications does the operator need to have? What is the required minimum crew?
Define partner’s or co-owner’s operational responsibilities. These responsibilities might seem self-evident, but your partnership agreement should specify that partners must operate the yacht in accordance with the official Rules of the Road, the COLREGs (International Regulations for Preventing Collisions At Sea), state and local laws, the insurance contract, and the boat and equipment operating limitations.
Establish and define yacht policies and procedures. Are pets allowed aboard? Are cigars permissible on the aft deck? What condition should an owner leave the boat in when finished with his or her time aboard? What standards of cleanliness are expected? What supplies must be replenished? What happens if an owner or guest breaks something? What’s the yacht’s policy about upgrading or replacing worn or outdated equipment? How is the ship’s log to be kept and maintained, and what information must be included? While you certainly can’t plan for everything, the more clearly you can spell out your policies and procedures, the less confusion and misunderstanding you’ll experience.
Establish and define record-keeping procedures. Determine who is responsible for maintaining complete business and accounting records of all co-ownership affairs. Who is responsible for the safekeeping of registrations, certificates, bill of sale, or any other documentation relating to the purchase, registration, or sale of the yacht and any major purchases?
Define the exit strategy. What happens if a partner wants or needs to sell his or her share? Do the other partners have the right of first refusal? If they don’t want to buy the partner out, do they need to approve any new buyer? What happens if a partner or co-owner needs to just walk away due to health, loss of income, or even death?
