LLC question...

[ancora]

Lookin' at an (IMHO) overpriced boat that has a transferable LLC. Does the owner add on to the price of the boat because of the LLC?

 

[Brisyboy]

Llc?

 

[DavidM]

An LLC is a limited liability company that makes it possible to transfer ownership in a boat simply by selling the LLC which owns the boat. In this case the boat is the only asset of the LLC. Then you don't have to pay any sales tax as long as the boat remains owned by the LLC.


I wouldn't pay a dime more for a boat owned by an LLC.


David

 

[Action]

I wouldn't pay a dime more for a boat owned by an LLC.

I would echo that opinion as well.

One can set up a LLC easily and for a few hundred dollars depending on the state.

If the owner and vessel are moved to a new state. And that new state has a registration process which includes displaying a decal/sticker on the exterior of the boat, likely the LLC strategy will be defeated and the sales tax may be collected at the time the vessel is registered.

If the vessel is not changing states for location, then the mailing address would need to be updated IF that state requires displaying a decal/sticker on the exterior of the boat. Some states will only mail for renewal. If you buy a boat and leave in the same state and the state mails to a previous address, the new owner will not be notified at renewal time.

 

[Codger2]

Lookin' at an (IMHO) overpriced boat that has a transferable LLC. Does the owner add on to the price of the boat because of the LLC?

Some do, knowing just how much money the're saving the buyer in sales/use taxes.

 

[gsholz]

Buying an LLC is not quite as simple as buying just the boat. If there are any claims against the LLC, which are not always easy to find, you'll inherit those too. I understand that state tax authorities can penetrate the LLC veil and will charge use/sales tax upon transfer if they conclude that the LLC simply exists to avoid tax.

 

[ancora]

Sounds like a risky proposition for anyone livin' here in Kalifornia.

 

[fgarriso]

LLCs

Lookin' at an (IMHO) overpriced boat that has a transferable LLC. Does the owner add on to the price of the boat because of the LLC?

We own our boat in a Delaware LLC. The reasons for the LLC are as follows.

1. It was easier the purchase under our business.
2. There are Tax advantages with documentation in Del.
3. If you decide to sell the boat all you have to do is sell the LLC, and change the docs.
4. Part of the ownership cost can be charged off to the business.
5. The insurance on charters is better under our LLC.
6. IT DOES NOT CHANGE THE VALUE OF THE BOAT, but does make it easier to sell the boat.

 

[BruceK]

Llc?

= a Pty.Ltd company in Australia.Here you would buy out the shareholder(s).

Be careful, the liabilities stay in the structure, as well as the assets. Some form of indemnity by the existing directors/shareholders for undisclosed liabilities might help.

 

[Woodland Hills]

Buying an LLC is not quite as simple as buying just the boat. If there are any claims against the LLC, which are not always easy to find, you'll inherit those too. I understand that state tax authorities can penetrate the LLC veil and will charge use/sales tax upon transfer if they conclude that the LLC simply exists to avoid tax.

Not in Florida. I actually called up the head of the tax department in Tallahassee and was told directly by him that it is a well known loophole and was totally legal. Florida use/sales tax is capped at $18k and that’s what we saved by buying the LLC. The previous owner had the boat and LLC for 9 years and signed an indemnity letter written by our attorney covering his time of ownership. We figured any liens from an owner prior to him would have shown up by then.

The boat is documented and is also registered in Florida as an antique (over 30 years old) for $4 a year. The LLC is in Delaware.

 

[Bkay]

If there are any claims against the LLC, which are not always easy to find, you'll inherit those too.

This is very true. In my grown-up job we deal with this regularly and buying an LLC means you are buying all the potential claims (even those that have not shown up yet). My lawyers get apoplectic when I talk about buying an LLC or other legal entity rather than just buying the underlying asset.

 

[k9medic]

You just have to renew an LLC every year. I have two LLC's in Florida. They run me $139 a year.

 

[Russell Clifton]

Our boat was owned by a LLC when we bought it. After consulting with a maritime attorney, we bought just the boat and told them to keep their LLC.

 

[tiltrider1]

In short, LLC’s can help you take advantage of tax loop holes. LLC’s open up other issues such as past liabilities following the LLC. Those of us familiar with LLC’s know how to maneuver through these issues. Those not familiar with LLC’s might be best served avoiding them. Since every situation is different it’s impossible to make any meaningful comments on weather an LLC is a good situation or bad.

 

[Drake]

If there are any claims against the LLC, which are not always easy to find, you'll inherit those too.

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.

 

[DaveS]

Lookin' at an (IMHO) overpriced boat that has a transferable LLC. Does the owner add on to the price of the boat because of the LLC?

An LLC (Limited Liability Corporation) is is used for a number of reasons, but primarily to allow transfer of the vessel and avoid payment of state and local taxes (sales/property etc.) when (and after) you purchase a boat. You do not actually transfer the LLC. You obtain membership in it by purchasing stock in it like you would by stock in any other corporation. You would normally obtain 100% of the shares in the LLC which holds the boat as an asset. Lets say the LLC is registered in Delaware. The seller transfers the shares of the LLC to you so you now become the controlling member (owner) of the Delaware LLC. As the boat was and remains part of the Delaware LLC, no taxable event takes place in your home state. There are, however, risks that an attorney can explain to you. It is not, nor should it be considered a "loop hole" as some here claim. It is a legitimate way to purchase a asset like an expensive boat There are many more issues to consider when purchasing a boat in this manner. and transferring membership in an LLC. I am an attorney for 32 years (in California) despite which I hired an attorney who specializes in these transactions. While there are tax implications/risks an LLC is a smart choice in the right circumstances. If you can afford an expensive boat, you can afford to spend the $3k to $5k that a proper transfer will cost you. If you want the name of the law firm (in San Diego) that can assist you (or refer you to an attorney in your area), let me know. My other bit of legal advise is not to seek legal advice from the internet. However well meaning the folks here are, most are not attorneys.

 

[DaveS]

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.

Drake, as an attorney myself who has dealt with many such transtfrs including the purchase of my boat ( a Nordhavn 55) through an LLC, how can you say there is too much risk? Would you tell that to any client wanting to transfer membership in an LLC? Literally tens of thousands of transactions like this (some involving and some not involving boats) occur annually. I am not saying that all boat purchases should be through an LLC, but after performing our due diligence it is a safe and effective transaction.

 

[nwboater]

My experience has been that banks will not make a loan on a boat owned by an LLC.

 

[MOJO]

Our boat was owned in a Delaware LLC. The primary reason was to limit personal liability. It cost us about $135/yr to maintain the corporation. I made sure that all the records were properly maintained and the finances were in a separate "business" account. I was told this would minimize any state trying to "pierce the veil of the LLC" to levy taxes. Several years ago a Hampton county in Virginia tried to assess property tax on the boat, saying that their property tax waiver for boats did not apply to boats owned by a corporation. Their logic was that a corporate owned boat was probably used for making a profit (charter, fishing, etc.) and therefore it should pay personal property tax. I ultimately transferred the boat into my name (a non-taxable event in Florida) and dissolved the LLC, thus avoiding the tax. I'm not an attorney, but I would think that if one purchased an LLC that owned a boat, in addition to getting a indemnity agreement from the seller, as a belt and suspenders approach to avoid any hidden liability, if their state allows (like Florida), the new owner could subesqently transfer the asset (boat) to their personal name and dissolve the LLC, just as I did.

 

[k9medic]

...You obtain membership in it by purchasing stock in it like you would by stock in any other corporation. You would normally obtain 100% of the shares in the LLC [...] My other bit of legal advise is not to seek legal advice from the internet....

Maybe California is different (it is or so I have heard) but I have never heard of an LLC selling or issuing stock, or having shares.

You have members and each member must be issued a K1 as the income from the LLC is passed through to each member.

 

[courage121]

One aspect of having a boat owned by an LLC not mentioned in any of the above posts is the extra layer of legal protection it offers. My understanding is that the legal "veil" of the LLC can possibly be penetrated but it at least is a first line of defense against a lawsuit. My boat is owned through a Delaware LLC and I have enjoyed the benefits of this approach for the last 17 years.

 

[Drake]

Drake, as an attorney myself who has dealt with many such transtfrs including the purchase of my boat ( a Nordhavn 55) through an LLC, how can you say there is too much risk? Would you tell that to any client wanting to transfer membership in an LLC? Literally tens of thousands of transactions like this (some involving and some not involving boats) occur annually. I am not saying that all boat purchases should be through an LLC, but after performing our due diligence it is a safe and effective transaction.

The short answer is yes, I would tell that to any client considering buying a boat inside an existing LLC.

Any time you acquire an existing LLC it comes with any and all liabilities of that LLC, whether you know about them or not. For example, if last year (or last week) the boat injured someone and there is a lawsuit coming that you don’t know about, the LLC comes with that risk. The assets of the LLC, including the boat itself, could be lost. Why would you want to run that risk?

No amount of due diligence can guarantee that there are no unknown unknowns. It may be effective, but it’s not safe.

Sure, LLCs are sold every day. But I have been doing mergers and acquisitions for 45 years and 100% of the time I would prefer to acquire the assets instead of the entity (LLC, corporation, etc) unless there were some compelling reason to acquire the entity itself. In a pleasure boat transaction that is rarely if ever the case.

Personally, I have bought boats that were owned in an LLC. I always create my own new LLC then it buys the boat from the old LLC. As long as I get a title search I know I won’t get any nasty surprises later.

For me, it’s a no brainer.

 

[ProMaritime]

gsholz is correct, you buy and LLC you inherit everything so due your diligence. A single-member LLC usually does not provide the liability protection you may think.

 

[BruceK]

Indemnities for unexpected liabilities accompanying the LLC have been mentioned, but if the "sellers" lumber you with unexpected liabilities in the LLC, how good are the indemnities likely to be? And you`ve got to enforce them and actually extract the $. I`d be very cautious about it,but then I`m a retired lawyer. I saw people do the equivalent here,acquire the shares in a Pty.Ltd. company to acquire the assets,and seem to recall there were issues. But, if you are sure the LLC is "clean",and you save a heap on duty and tax,maybe it`s worth doing.

 

[twistedtree]

Indemnities for unexpected liabilities accompanying the LLC have been mentioned, but if the "sellers" lumber you with unexpected liabilities in the LLC, how good are the indemnities likely to be? And you`ve got to enforce them and actually extract the $. I`d be very cautious about it,but then I`m a retired lawyer. I saw people do the equivalent here,acquire the shares in a Pty.Ltd. company to acquire the assets,and seem to recall there were issues. But, if you are sure the LLC is "clean",and you save a heap on duty and tax,maybe it`s worth doing.

Exactly. When called on to defend a claim, you can be sure the previous owners will be nowhere to be found. You will have to sue them for whatever you are being sued for. Nobody will win except the lawyers.


Based on the expected savings in taxes, which seems to be about the only reason to buy the LLC, you might want to take the risk. But don't kid yourself that there is none, or that and indemnification means anything if it comes down to an actual claim.

 

[k9medic]

I think there is some overthinking here...

An LLC like this was probably not set up to conduct business but to own the boat. There are only so many ways that you can have outstanding liabilities with an LLC that does nothing other than own an asset.

A partner and I formed an LLC last year that purchased a corporation that was similar with assets.

We then merged the corporation into the LLC and I dissolved the corporation. Within the merger documents that are filed with the state we had the following (names changed):

"XYZ, Inc agrees to merge with and into LNMOP, LLC effective xxxxx. XYZ, Inc, "Bill Bob", and "Cleatus" agree to hold harmless and indemnify "LMNOP, LLC, buyer 1 and buyer 2" from any and all claims, actions, liabilities, suits, injuries, demands, obligations, losses, settlements, judgments, damages, fines, penalties, costs and expenses including attorney fees and other expenses (collectively a Claim) arising out of or or relating of the sale of XYZ, Inc and it's assets to "LMNOP, LLC, Buyer 1 and Buyer 2"

 

[twistedtree]

I think there is some overthinking here...

An LLC like this was probably not set up to conduct business but to own the boat. There are only so many ways that you can have outstanding liabilities with an LLC that does nothing other than own an asset.

A partner and I formed an LLC last year that purchased a corporation that was similar with assets.

We then merged the corporation into the LLC and I dissolved the corporation. Within the merger documents that are filed with the state we had the following (names changed):

"XYZ, Inc agrees to merge with and into LNMOP, LLC effective xxxxx. XYZ, Inc, "Bill Bob", and "Cleatus" agree to hold harmless and indemnify "LMNOP, LLC, buyer 1 and buyer 2" from any and all claims, actions, liabilities, suits, injuries, demands, obligations, losses, settlements, judgments, damages, fines, penalties, costs and expenses including attorney fees and other expenses (collectively a Claim) arising out of or or relating of the sale of XYZ, Inc and it's assets to "LMNOP, LLC, Buyer 1 and Buyer 2"

I think BruceK's and my point is that those words are only as good as the performance of the indemnifying party. So if called on to perform, the language is only as good as the person's actual performance. In my limited experience, it will at best be an exercise in pulling teeth, and you may well find there are no teeth to pull. Consider Crusty's or ASD's (I can't recall which one) issue with the guy who smashed into and destroyed their dock and boat house. The guy wouldn't make good on it and had to be dragged into court. And even after being ordered to repay, had no assets to pay with. That seems to be the typical story.

 

[Bigsfish]

Every boat I have purchased I purchased only the asset in a full corporate name that was later transfer into a trust, that thrust is owned by another trust which is owned by a corporation . It complicated but my attorney assures me it is the safest way to limit any old liability on the boat and future liability to me. So far it has worked but it hasn’t been tested.

Good luck, and not to offend anyone here but attorneys can screw up a good society.

 

[Idette]

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

 

[Drake]

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

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.

Paul