Corporate (or LLC) ownership may, under some circumstances, offer three possible advantages: liability protection, tax savings, and privacy. As a general rule, however, few boat owners will be in a position to benefit from any of these strategies.
The corporate form will provide a liability shield for a business, if the company is properly formed and maintained. As such, corporate boat ownership may be advisable for a maritime business, such as a charter boat operation. However, this liability protection was developed to encourage business and economic growth, not to protect people in their recreational endeavors. A corporation or LLC with no business purpose may therefore be disregarded in the event of a lawsuit, and the shareholders will be forced to defend the suit themselves.
Similarly, corporate or LLC ownership will have almost no effect in California on the assessment of sales tax or on the annual assessment of personal property tax. It may be possible to transfer a boat into a newly formed corporation, or to purchase the corporation itself, without the assessment of sales or use tax. This may provide some savings when the boat will be owned by several partners, but the legal and practical requirements of these strategies are very complex and should not be considered without consulting a lawyer or tax professional.
Similarly, there may be some income tax benefits to corporate boat ownership, but your tax advisor will tell you that some form of business enterprise must accompany the operation and ownership of the boat.
One tangible benefit of corporate ownership may be the privacy of the ownership records. The Coast Guard maintains a database of American-flagged vessels, and the name of the owner of any boat is readily available on the Internet.
Some states (such as Delaware) do not include the names of a corporation’s directors or officers in the public record of a corporation. If a boat is owned by a Delaware corporation, only the name of the corporation is made public. This may be an attractive option to celebrities and other owners of high-end boats.
Finally, foreign registry of a recreational boat in California will provide little, if any, benefit to the owner. Foreign registry of large yachts in Florida is relatively common, in part because a foreign-registered boat may qualify for an exemption from Florida sales and use tax. California offers no such exemption.
Large yachts with a professional crew may also benefit from a lower level of regulation over crew and equipment under certain foreign flags. Unfortunately, these features of foreign registration are not likely to help a California recreational boat owner.
And, since a foreign-registered boat must obtain a temporary cruising permit from U.S. Customs to operate in U.S. waters, the “hassle factor” associated with foreign registration may be prohibitive for most boat owners.
Boat owners in California should think twice before titling their recreational yacht into a corporation or under a foreign flag. The advantages of these strategies are very limited, and the costs may be prohibitive.
However, this does not mean that corporate boat ownership or foreign registry are never advisable. Every circumstance is different, and a boat owner who is considering these questions should consult his or her own tax and legal advisors for more information.