LLC question...

[Codger2]

In all the states I’m familiar with, it isn’t necessary to state a specific business purpose. You can just say the LLC is to engage in any lawful purpose. But check with your lawyer to confirm.

Such was my experience last year in California. There are one hell of a lot of people out here that have LLCs and I have yet to hear of one who has had any problems.

 

[JP2]

For Drake; FWIW, Our stated purpose of the WA LLC was to hold its one and only asset, Das Boot. Our purpose was liability protection since we had a partner in ownership in the beginning. I stick close to brokers in this area and have never heard of a problem with LLC's and undisclosed liabilities. But I understand the question. It should not be hard to look up any existing actions against an LLC, just like any corporation.



Later, as a sole owner, we kept the LLC because of liability protections on the advice of our attorney. We maintain the required records, file the reports, etc.. and try to do everything by the book. When we sell in the future, the buyer can either buy the LLC or the asset. Their choice. Easy.


Buying from a previous owner, I would think one would want them to warrant in the Bill of Sale that title is free and clear of all liens, claims and mortgages, regardless if its an LLC or asset purchase.


But what do I know?!!

 

[BruceK]

For those of you that have put your boat into an LLC, what do you state as the business purpose when establishing the LLC?

A lawyer friend with a dry sense of humor, tried to register a corporation with the name "TaxLurk". Companies office said no. As did the horse racing authorities when he tried to register a racehorse with the name "Trust Account"(maybe Escrow A/C" in USA).

 

[Jknox0601]

I saw a boat advertised for sale with a statement something like: “LLC owned —NO SALES TAX.” This is in Washington state and, although I practiced law for 30 years, it was in California and I did not deal with LLCs very much. However, I completely agree with the comments about watching out for liabilities of the LLC that might come along for the ride. Also, I did a bit of quick research in the WA statutes, and it appears there is a specific tax avoidance prohibition intended to go after this structure, so I would bet that, if the taxing authorities found out about the deal, they would go after the sales tax. It may be that many of these transactions are done and don’t get caught because there would be no way to tell on the face if it that the LLC owned a boat and was used solely to avoid tax, but I wouldn’t take the chance, and I certainly wouldn’t pay more to compensate for the supposed tax relief.

 

[BandB]

Absolutely correct. I would not consider buying a boat inside an LLC. Too much risk.

I’m a lawyer and I deal with LLCs every day.

I see people buying houses, boats, and planes that way and probably 95% of them do ok and don't encounter major problems, although many find the savings not to be what they expected. However, it's the other 5% that make me also say I would never purchase an existing LLC or Corporation.

 

[DaveS]

My reply is stated above. As an attorney, I will state again, that people should not get legal advice from the internet or web sites such as this. LLC's serve many purposes of which tax avoidance is only one. In the US annually there are probably hundreds of thousands of transactions involving the transfer of an LLC (or similar entities) involving not only boats but other high value items as well. Those who make the blanket statement "never use an LLC" to make a major purpose (even some attorneys on this site) simply do not know what they are talking about. In some cases it is an appropriate method of transfer and in others, not. If you can afford $200-300-400K or more for a boat, spend the money to talk to an attorney who specializes in these type of transactions to determine if it is correct for your transaction. Done for the right reasons, it may help avoid sales tax, protect against liability, etc.

 

[BandB]

My reply is stated above. As an attorney, I will state again, that people should not get legal advice from the internet or web sites such as this. LLC's serve many purposes of which tax avoidance is only one. In the US annually there are probably hundreds of thousands of transactions involving the transfer of an LLC (or similar entities) involving not only boats but other high value items as well. Those who make the blanket statement "never use an LLC" to make a major purpose (even some attorneys on this site) simply do not know what they are talking about. In some cases it is an appropriate method of transfer and in others, not. If you can afford $200-300-400K or more for a boat, spend the money to talk to an attorney who specializes in these type of transactions to determine if it is correct for your transaction. Done for the right reasons, it may help avoid sales tax, protect against liability, etc.

In my case, I simply stated I would never purchase one. But then we purchased businesses and never purchase the corporation or LLC, only the assets. However, I'm fully aware of the potential savings and benefits and that it makes sense for some. We also sold a boat that was in an LLC and the buyer could have saved $18,000 but we didn't sell him the LLC. I use LLC's and S-Corps all the time but just don't purchase them. Just a personal thing but I'd advise others to check with both their lawyer and accountant who are familiar with their situations.

The decision is also very dependent on where the buyer lives, where the LLC is, and other factors, but as with so many things the laws and rules vary greatly by state.

 

[Boat]

Ain't the dog it's the fleas.

"LLC owned —NO SALES TAX" That's just painting a target on your back.

You don't do that. Someone said a trust in a trust with a corporation as the beneficiary. Hire a lawyer outside your jurisdiction to hire a lawyer to hire a paralegal to do the paperwork. Let them do the talking, you just smile.

 

[Drake]

My reply is stated above. As an attorney, I will state again, that people should not get legal advice from the internet or web sites such as this. LLC's serve many purposes of which tax avoidance is only one. In the US annually there are probably hundreds of thousands of transactions involving the transfer of an LLC (or similar entities) involving not only boats but other high value items as well. Those who make the blanket statement "never use an LLC" to make a major purpose (even some attorneys on this site) simply do not know what they are talking about. In some cases it is an appropriate method of transfer and in others, not. If you can afford $200-300-400K or more for a boat, spend the money to talk to an attorney who specializes in these type of transactions to determine if it is correct for your transaction. Done for the right reasons, it may help avoid sales tax, protect against liability, etc.

Just to be clear, I did not say that I would never USE an LLC. What I said was that I would never buy a boat in an LLC because there’s too much risk of hidden liabilities and almost never any real benefit. However, I would almost always use a new LLC I set up to buy the asset (boat) and hold it because of the additional protection it gives from liabilities.

I do agree 100% that one should always consult with a competent lawyer before making a decision like this.

Paul

 

[warfdog]

I have never looked into an LLC in California for property ownership, but in this state you pay an $800 annual fee (tax) on top of any other taxes just for the privilege of having one.

 

[Chrisjs]

You do not need to register the LLC in the state where you keep the vessel or live. So no need to pay exorbitant CA taxes! We are MA residents but formed our LLC in Delaware, as one of the more favorable business states. When we sold the boat, the new owners did not need to pay sales tax, or re-document the vessel. All radio licenses etc transferred with the LLC. They simply needed to change the mailing address for the LLC. As stated previously, an LLC has "members", in our case myself and my wife. It was easy to organize on line and annual fees were nominal. No problem with insurance as this is common approach. Not sure about banks but would think you should be able to get a "business" loan for an LLC, secured against the vessel.

 

[BandB]

You do not need to register the LLC in the state where you keep the vessel or live. So no need to pay exorbitant CA taxes! We are MA residents but formed our LLC in Delaware, as one of the more favorable business states. When we sold the boat, the new owners did not need to pay sales tax, or re-document the vessel. All radio licenses etc transferred with the LLC. They simply needed to change the mailing address for the LLC. As stated previously, an LLC has "members", in our case myself and my wife. It was easy to organize on line and annual fees were nominal. No problem with insurance as this is common approach. Not sure about banks but would think you should be able to get a "business" loan for an LLC, secured against the vessel.

As to the need to register the LLC in the state where the boat is kept, there is considerable debate as to whether you need to then register it as a foreign LLC. Most states do require foreign LLC's to register if they are going to transact business in the state. Is renting a slip transacting business? Most say it's only transacting business if you receive revenue. However, LLC's generally should charge individuals for use of their assets, such as your LLC should charge you a fee for using the boat.

The point is that while forming an LLC is simple and inexpensive, one should consult with an attorney about all the other aspects of ownership. They will know any rulings or court opinions regarding registration of foreign LLC's. This has been tested on charter planes in several states where the LLC is collecting revenue. Please get solid legal opinions, not internet opinions or opinions from those in other states.

 

[ProMaritime]

Chrisjs has excellent info on LLCs as a way to own a boat.

As for getting a loan on an LLC owned US documented vessel, it should be simple for a lender to record with the USCG a 1st Preferred Ship Mortgage on the boat itself, not the LLC. This prevents liens which may surface against the LLC by its creditors for attaching the boat, which protects the lender.

One caveat on buying an LLC as a means of acquiring a boat, do a records search on the LLC long with a written warranty from the LLC seller and a title search with the National Maritime Center (USCG) on the boat to insure both are clean.

 

[FF]

I wonder if an LLC would work for a boat that does not want to pay for liability insurance.

$800K for a cup of diesel in the water?

Might be cheaper to walk away from the asset.

 

[BandB]

I wonder if an LLC would work for a boat that does not want to pay for liability insurance.

$800K for a cup of diesel in the water?

Might be cheaper to walk away from the asset.

One major problem with that strategy. Two parties have liability, the boat and the operator. That's before even piercing the veil of the LLC.

 

[ProMaritime]

No it won't. A law suit will look right past the LLC, Sub-S corp. or any other pass-through entity at its true owner because these entities rarely have a separate iron-clad operating agreements and the keep sloppy books and records which will allow the plaintiff to "pierce the corporate veil" as it is called. A well drafted suit will list as defendants every one standing around at the time, the LLC members, their spouses, the marina (which you can't park in anyway without liability insurance) your mother-in-law who loaned you the down payment, etc. etc. etc.

And, if they win the suit they will file a lien directly against the boat itself with USCG if it is a USCG documented vessel. Heavy duty insurance is your only protection and even it has its limitations.

"I can explain it to you, but I can't make you understand" – Author Unknown

 

[BandB]

No it won't. A law suit will look right past the LLC, Sub-S corp. or any other pass-through entity at its true owner because these entities rarely have a separate iron-clad operating agreements and the keep sloppy books and records which will allow the plaintiff to "pierce the corporate veil" as it is called. A well drafted suit will list as defendants every one standing around at the time, the LLC members, their spouses, the marina (which you can't park in anyway without liability insurance) your mother-in-law who loaned you the down payment, etc. etc. etc.

And, if they win the suit they will file a lien directly against the boat itself with USCG if it is a USCG documented vessel. Heavy duty insurance is your only protection and even it has its limitations.

"I can explain it to you, but I can't make you understand" – Author Unknown

As he says, piercing the corporate veil can be quite easy, depending on state, when LLC isn't an operating LLC, doesn't have contracts, isn't billing for the use of the boat. Again, consult an attorney and an accountant before doing it.

All our businesses are S-Corps with just us as the two owners and we're well protected. We have houses and boats as LLC's and our own attorney has said we're only moderately protected.

To get strong protection, the LLC would have to rent you the boat at a profit and that profit would be taxable to you.

That's only our situation in our state, but points out how essential it is to check.