Understanding Corporate Boat Ownership

Doing it correctly requires preparation of several important documents

October 27, 2016
sport-fishing boats sitting at dock
If you’re looking create a company for the purpose of owning a boat, there are things to consider before starting the process. Andrew Cox

Owning a sport-fishing vessel as part of a company is quite common, due in large part to the litigious world we live in. Companies are typically used as a form of liability protection in the event an accident occurs. A properly formed and managed company for purposes of boat ownership can be helpful, but it is not as simple as forming the entity and executing a bill of sale. There are other things to consider, including the necessary corporate documents and understanding why those are important, as well as what professionals should be involved in the process.

Limited Liability Companies

Most domestic owners choose to put their boats in limited liability companies. LLCs are regulated differently in every state, but they are generally formed by filing the articles of ­organization and maintained on a yearly basis by filing an annual report. I often hear remarks from individuals who question why an attorney is needed when forming a company if it as simple as filing just one document. The truth is, there are some additional documents that are important to entity formation and others necessary when an asset is purchased or sold by a company. Ideally, certain documents should be prepared by attorneys only.

Operating Agreement

Perhaps the most important document in an LLC is an operating agreement. Most states do not require an operating agreement, but its importance cannot be overstated. A company’s operating agreement covers a lot of information, but generally speaking, it establishes the framework and business structure. It identifies the company’s governing rules, including managerial structure, profit distribution, voting rights, and what happens when a member dies or perhaps wants to sell its interest. Typically, an operating agreement also identifies the members and officers of the company, which is especially important in states where this kind of information is not on public record.


Authorization of the Transaction

When purchasing a vessel owned by a company, it’s important to have a formal record of the members and the percentage interest each owns, whether it’s detailed in the operating agreement or another document. Without such a record, it can be difficult to determine if the proper individuals are authorizing the sale of the vessel. It’s important the buyer requests and inspects the relevant corporate documents to ensure a company is in good standing and the proper individuals authorize, or consent to, the sale of the vessel. Authorization is accomplished through a corporate resolution, commonly known in an LLC as a written action or consent of the members. Specifically, a written consent is a formal document in which all members, or those holding a majority interest in the company, authorize a particular action in accordance with the operating agreement and state laws. Such a document is typically required when a corporate action is outside the course of a company’s ordinary business, which is normally the case when an entity is purchasing a vessel for recreational use.

Watch Out

In many states, only an attorney can draft a written action for a client since the preparation of such a document is typically considered the practice of law. The unauthorized practice of law is not something that should be taken lightly; it is a third-degree felony in many jurisdictions. Advising clients on how to structure a company and drafting any corporate documents on their behalf is considered the practice of law in most states. This does not include the fact that most boat buyers need advice on other matters, including sales and use tax. Buyers are often referred to documentation agents to handle the registration and titling of their vessel. Documentation agents are very useful and have extensive knowledge when it comes to registering and documenting boats, but buyers should consider hiring legal counsel to manage a transaction involving an asset owned by a company. This course of action will ensure a company is structured correctly, the sale of a vessel is properly authorized and a clean title is properly transferred to the new owner.

Toys are Expensive Too

Clients often tell us they prefer to keep things simple when dealing with their “toys” (e.g., boats and planes). I can’t speak for other lawyers, but I certainly find no joy in making things more ­difficult than they need to be. Unfortunately, corporate laws don’t become more lenient when dealing with sport-fishing boats rather than real estate. Good lawyers do things the right way regardless of the type of asset. Most individuals who have enough money to afford a sport-fisher got to where they are financially by doing their jobs in a professional and proper manner. It should be no different when dealing with high-value toys. I have learned that every transaction is different in its own way, so whether it’s advice from legal counsel or a tax professional, it’s always wise to engage with the proper representation when dealing with the corporate ownership of vessels.


Raleigh P. Watson is a contributing author, and a Partner at Miller Watson Maritime Attorneys.


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