Buying an LLC

bligh · Jul 31, 2020

Hey all, as you know I am in contract to buy a boat. But the boat is in an LLC so apparently I am in contract to buy an LLC that owns a boat. I dont think the broker has any clue what to do. I know that the boat is in a Delaware corporation. But that is all I know. Can anyone steer me in th right direction so I am informed as to what procedures I need to take and what documents I need to sign, have signed , and file and with what entity to file?

Comodave · Jul 31, 2020

Get a lawyer that knows maritime law and whatever state you are going to keep the boat. You may have a chance to not pay sales tax so it can be important that you handle it correctly. Good luck.

DavidM · Jul 31, 2020

Comodave said:
Get a lawyer that knows maritime law and whatever state you are going to keep the boat. You may have a chance to not pay sales tax so it can be important that you handle it correctly. Good luck.

David

caltexflanc · Jul 31, 2020

You are in a contract to buy a boat from an LLC. Not the LLC itself. If your contract reads otherwise, get the broker to straighten that out.

bligh · Jul 31, 2020

Comodave said:
Get a lawyer that knows maritime law and whatever state you are going to keep the boat. You may have a chance to not pay sales tax so it can be important that you handle it correctly. Good luck.

Have you actually done this before?

Russell Clifton · Jul 31, 2020

I have done it. You do not need to buy the LLC. The boat is just a asset of the LLC and you are buying the boat. If you decide to buy both I would for sure consult with a lawyer familiar with maritime law.

Caphenning · Jul 31, 2020

bligh said:
Hey all, as you know I am in contract to buy a boat. But the boat is in an LLC so apparently I am in contract to buy an LLC that owns a boat. I dont think the broker has any clue what to do. I know that the boat is in a Delaware corporation. But that is all I know. Can anyone steer me in th right direction so I am informed as to what procedures I need to take and what documents I need to sign, have signed , and file and with what entity to file?

Do not accept those terms under any condition as you will be assuming all past liabilities of that LLC and you have no idea what they are. You need to be in a contract to buy the vessel from an LLC, and for that I would go through a title insurance company to handle the closing.

bligh · Jul 31, 2020

Russell Clifton said:
I have done it. You do not need to buy the LLC. The boat is just a asset of the LLC and you are buying the boat. If you decide to buy both I would for sure consult with a lawyer familiar with maritime law.

I do need to buy the LLC. If I buy the LLC , then I avoid CA sales tax (8%).

Caphenning · Jul 31, 2020

bligh said:
I do need to buy the LLC. If I buy the LLC , then I avoid CA sales tax (8%).

You are taking a big risk by doing so, you don’t know what the LLC liabilities are. Your required due diligence to assure that there isn’t a million dollar lawsuit hiding in the closet and insuring against it is going to cost you more than the tax most likely given the boats you’re looking at. Better to form a new LLC to buy the old one, this gives you a corporate shield that limits your potential personal losses to the boat.

MYTraveler · Jul 31, 2020

bligh said:
I do need to buy the LLC. If I buy the LLC , then I avoid CA sales tax (8%).

Talk to a knowledgeable lawyer. It will not work, very likely you will get caught (though it may take a few years), no statute of limitations will protect you (since you will not have filed a return), so in addition to the tax (and I believe the rate is closer to 10%, but it does vary a little by county), you will have to pay penalties and interest.

caltexflanc · Jul 31, 2020

I should add, you don't need a maritime lawyer, just a business lawyer. You can get one there in Santa Cruz.

mvweebles · Jul 31, 2020

As I recall, asking price on this boat was close to $400k. Tax is in the range of $30k. California board of Equalization (the tax authority) is ruthless, and basically compels you to prove you do not owe a tax (vs they proving you do owe the tax).

You need an attorney or specialist on this one. Screw-up and you'll be fighting the State for years. And it won't end well for you. Doubtful there is anyone on any internet forum who can realistically assist. You have stumbled into a 30-year game of cat and mouse.

Good luck. Would appreciate an update on where you land.

Peter

Comodave · Jul 31, 2020

bligh said:
Have you actually done this before?

No, I have not but have seen people get in trouble because they didn’t do it right.

bligh · Jul 31, 2020

mvweebles said:
As I recall, asking price on this boat was close to $400k. Tax is in the range of $30k. California board of Equalization (the tax authority) is ruthless, and basically compels you to prove you do not owe a tax (vs they proving you do owe the tax).

You need an attorney or specialist on this one. Screw-up and you'll be fighting the State for years. And it won't end well for you. Doubtful there is anyone on any internet forum who can realistically assist. You have stumbled into a 30-year game of cat and mouse.

Good luck. Would appreciate an update on where you land.

Peter

Technically, the boat will not have a change of ownership. It is owned by a Delaware based LLC. Transfer of ownership of an LLC does not trigger sales tax. Sales tax is triggered when a boat changes ownership.
I agree I need specialist on this one. I was hoping someone could refer me to a lawyer or accountant they have used for the same purpose.

bligh · Jul 31, 2020

MYTraveler said:
Talk to a knowledgeable lawyer. It will not work, very likely you will get caught (though it may take a few years), no statute of limitations will protect you (since you will not have filed a return), so in addition to the tax (and I believe the rate is closer to 10%, but it does vary a little by county), you will have to pay penalties and interest.

What do you mean 'get caught?' I am not doing anything illegal.

If I sell my business, which is a corporation, all the assets go with it, including vehicles that are owned by the corporation (on the title) and the titles of all the vehicles remain the same. None of the vehicles would be subject to sales tax since they would not be transferring ownership.

And I would also expect I would have to file an annual return. If I buy the existing LLC, I expect that I would get all the returns form the past 7 years as well.

SoWhat · Jul 31, 2020

You can not avoid the CA sales tax simply via an LLC. You would have to certify the vessel was in commercial use such as a charter boat or fishing boat. Now you're playing with fraud charges in addition to penalty and interest charges.
If the boat is used in CA, it must pay sales tax in CA, or qualify for one of the exemptions.

bligh · Jul 31, 2020

SoWhat said:
You can not avoid the CA sales tax simply via an LLC. You would have to certify the vessel was in commercial use such as a charter boat or fishing boat. Now you're playing with fraud charges in addition to penalty and interest charges.
If the boat is used in CA, it must pay sales tax in CA, or qualify for one of the exemptions.

If the boat does not transfer ownership, how can it be subject to sales tax?

syjos · Jul 31, 2020

Russell Clifton said:
I have done it. You do not need to buy the LLC. The boat is just a asset of the LLC and you are buying the boat. If you decide to buy both I would for sure consult with a lawyer familiar with maritime law.

Listen to Russell.

Buy the boat from the LLC as an individual. If you want to own it as a LLC, form another LLC after you buy the boat.

A LLC is just a like a person and sole proprietors and partnerships form it to protect their assets without having to form an actual corporation. I have several LLC's for businesses and other than having to fill out the annual state report and pay the annual fee, not a big deal. And anyone can fill out the online application, pay the fee and form a LLC. It's pretty simple. And the LLC gets treated like a sole proprietorship or partnership by the IRS. I'm not a lawyer.

We don't own our boat under a LLC.

drb1025 · Jul 31, 2020

Contact Wenthur Law Group wenthurlawgroup.com in San Diego. They can assist you with the purchase of an LLC that owns a boat. Nothing illegal about it.

Comodave · Jul 31, 2020

SoWhat said:
You can not avoid the CA sales tax simply via an LLC. You would have to certify the vessel was in commercial use such as a charter boat or fishing boat. Now you're playing with fraud charges in addition to penalty and interest charges.
If the boat is used in CA, it must pay sales tax in CA, or qualify for one of the exemptions.

This is why I said get a lawyer that knows maritime law and is knowledgeable about the sales tax issue. Whatever the lawyer says it will still be you that the BOE comes after and fines. Get one that know what they are doing.

catalinajack · Jul 31, 2020

Buying an LLC has nothing to do with maritime law. This is just basic commercial law. The boat travels with the corporation as does all of the corporation's assets and it's LIABILITIES. No change of ownership of the boat, no sales tax. But, buy the LLC and you assume responsibility for any and all liabilities, known and unknown. Good luck with that.

DavidM said:
David

mvweebles · Jul 31, 2020

catalinajack said:
Buying an LLC has nothing to do with maritime law. This is just basic commercial law. The boat travels with the corporation as does all of the corporation's assets and it's LIABILITIES. No change of ownership of the boat, no sales tax. But, buy the LLC and you assume responsibility for any and all liabilities, known and unknown. Good luck with that.

I agree Catalina Jack. It would be like buying a truck or a piece of equipment from a corporation. The difference is that in California, the tax authority is super alert to tax issues related to boats. They have spent over 30 years busting the balls of boat owners, often seeking taxes long after the vessel has left California. Even my measly Willard 36 required some positive proof she'd left California waters for good when I brought her to Mexico 1.5 years ago.

LLC or not, the OP would do well to have a knowledgeable person in his corner. It's super easy if you know where the speedbumps are

Peter

caltexflanc · Jul 31, 2020

I have used Deborah Malkin in Santa Cruz (Soquel) for various estate and business structure matters. Dmalkin@malkintrust.com (831) 462-9100

If for some reason I can't think of, she won't help you, then I can strongly recommend Kevin McCollough of Spaulding, McCollough and Tansil (SMT) in Santa Rosa, who has done a whole bunch of LLC and tax-related work for us over the course of the last five years.
(707)524-1900 mccllough@smlaw.com

Codger2 · Jul 31, 2020

mvweebles said:
LLC or not, the OP would do well to have a knowledgeable person in his corner. It's super easy if you know where the speed bumps are.

Mvweeble's advice is right on the money!

Get a lawyer who specializes in LLCs that own boats. My boat is in an LLC as are dozens & dozens of boats in SoCal. It's done every day down here and as some others have pointed out, it's a piece of cake when a knowledgeable attorney who does this for a living is involved. The attorneys fees down here are approximately
$3K to set up an LLC or transfer one. Most brokers in my area are quite familiar with these transactions & can recommend attorneys. :oldman:

caltexflanc · Jul 31, 2020

A boat is simply an asset of an LLC, no different than pieces of real estate or a car collection or works of art.

syjos · Jul 31, 2020

An attorney is an unnecessary expense. They will overly complicate the deal, which will result in more money spent. A LLC is technically not a corporation. It's a Limited Liability Company. It's used mostly to separate assets to protect them from liability. It is simple compared to a C or S corporation.

Treat the LLC as a person and buy just the boat from it.

Jeez, it's not a big deal. I formed several LLC's, buy and sell personal and real property belonging to the LLC and so far in over 35 years, have never consulted an attorney pertaining to the LLC or wished I had. The cost in Washington to form a LLC is $180 and $60 annual renewal.

Difficulty arises when sales tax avoidance is the goal.

There are so many online sources for LLC information and the Secreatary of State for your state should also have help available.

mvweebles · Jul 31, 2020

caltexflanc said:
A boat is simply an asset of an LLC, no different than pieces of real estate or a car collection or works of art.

Normally I'd agree, but with all due respect, there are certain assets in California that draw a lot of unwanted attention. A boat is one of them.

Codger2 · Jul 31, 2020

syjos said:
An attorney is an unnecessary expense.................. Treat the LLC as a person and buy just the boat. .

Not something I'd want to do!The OP is in California. Hiring an attorney to transfer the LLC is cheap compared to the tax you will pay if just purchasing the LLC's asset.

Comodave · Jul 31, 2020

syjos said:
An attorney is an unnecessary expense. They will overly complicate the deal, which will result in more money spent. A LLC is technically not a corporation. It's a Limited Liability Company. It's used mostly to separate assets to protect them from liability. It is simple compared to a C or S corporation.

Treat the LLC as a person and buy just the boat from it.

Jeez, it's not a big deal. I formed several LLC's, buy and sell personal and real property belonging to the LLC and so far in over 35 years, have never consulted an attorney pertaining to the LLC or wished I had. The cost in Washington to form a LLC is $180 and $60 annual renewal.

Difficulty arises when sales tax avoidance is the goal.

There are so many online sources for LLC information and the Secreatary of State for your state should also have help available.

Have you ever dealt with California BOE? They are something else. You had better have your ducks in a row before they come after you. I bought a boat in Washington State and later ran it to California. I finally convinced them that I didn’t owe California sales tax so they contacted Arizona and told them to go after me since the boat was home ported in Tucson, even though the boat never entered Arizona. If I were doing this purchase I would get an attorney that has extensive boat experience. Period.

Beaverlake · Aug 1, 2020

Purchasing an LLC to acquire a boat is not voodoo. It is a normal practice in states like CA and WA. There is good advice about getting a competent experienced attorney to make sure you aren’t assuming nasty liabilities. This is no illegal dodge or anything close. We investigated a boat in WA and a boat in CA along the last purchase path. Both were LLC owned. We ended up passing on the boats but not because of the LLC issue. We should not be giving advice beyond “get an experienced attorney” unless one of us has direct experience purchasing a Delaware LLC in CA as part of the process to acquire its assets (i.e., a boat).

Buying an LLC

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