Limiting Liability

[decktapper]

Hello: if you wanted a boat, and had the income to purchase it, and a substantial down payment that you were willing to risk, but wanted to limit your risks so that you could always walk away only loosing what you had already put into the boat, would you consider a corporation? S type?
Just a thought.

[Kettlewell]

Sure, people do that all the time for bigger yachts. I'm not sure it makes much sense for the average person as it costs something to run the corporation and complicates the paperwork and nonsense you have to go through when going to different countries, etc. For example, some countries look on a corporate owned vessel as being a commercial vessel, requiring pilots for some waters, just as one example. I think most of the larger yachts you see around with Cayman Islands hailing ports and such are owned by offshore corporations. Some people form LLCs in Montana, for some reason, and I suspect someone will chime in here on why they did that. Tax avoidance I suspect is the main reason.

[David_Old_Jersey]

Not entirely sure what liability you are seeking to walk away from - the balance of a loan? If that the case then will require an idiot for a lender! (to not seek at least a personal guarantee from you - as the source of the repayment, therefore negating the effect of limited liability via the corporation).

In regard to corporate ownership - widely accepted worldwide on boats of all sizes. The problems arise when folks don't have the right paperwork, and that often compounded from officialdom not caring in some places so it comes as a surprise when arriving somewhere they do care! (and mostly that paperwork is around proving that the boat is "yours" when it is not! and that you have been authorised to use / have possession of the boat (by someone who is authorised by the company to give that authorisation to you!) - and can prove all that in paperwork, not simply by asserting "it's mine"......all simple enough to put together when home, more of a PITA to collect and obtain when not).

[sailorboy1]

I think if you have that much to lose you should already have a lawyer on retainer and should take the question up with him/her

[Charlie]

Montana has no sales tax so that is why they create the corporations there. I would use an LLC b/c you can take it out of the LLC w/o tax consequences whereas in an S corp you need to take it out at fair market value.

If you have your boat in a Corporate name be sure to carry proof with you that the corporation is allowing you to use the boat. This can either be in a lease from the corporation to you or a legal document from the corporation. In Mexico I had to prove that I was president of the Corp that owned my boat. I happened to have my formation documents on a HDD.

[tropicalescape]

Originally Posted by decktapper

Hello: if you wanted a boat, and had the income to purchase it, and a substantial down payment that you were willing to risk, but wanted to limit your risks so that you could always walk away only loosing what you had already put into the boat, would you consider a corporation? S type?
Just a thought.

Taking minutes should be a lot of fun,not to mention all the other paper work and dealing with IRS..Good luck

[nautical62]

Much of the liability associated with boat ownership in unrelated to the value of the boat. having to pay for an environmental problem, damage you cause to a more expensive yacht, etc. may be far greater liabilities. Having to pay slip fees, insurance, etc. for a boat you are not using may also be.

My philosophy is to always have at least liability only coverage, and to never be in a situation where I can't financially just walk away from my boat and be okay financially.

[denverd0n]

Originally Posted by David_Old_Jersey

Not entirely sure what liability you are seeking to walk away from...

Same here. I think we need more details about exactly what sort of scenario you are envisioning, and what sort of protection you want.

Though, in the end, the most important thing to remember is...

Internet legal advice is worth exactly what you pay for it--NOTHING!

Whatever answer you get here, you are still going to have to talk to an attorney.

[David M]

Whatever you do with the boat your business still has to meet the IRS's definitions of a business and not a hobby. The IRS has definitions for both. This comes from my wife who is an enrolled agent. Many people falsely try to turn their hobby into a business, but only on paper. The IRS actively looks for this.

Boats depreciate (n terms of what someone is willing to purchase the boat for) regardless of how the ownership is structured.

[Lake-Effect]

Originally Posted by decktapper

Hello: if you wanted a boat, and had the income to purchase it, and a substantial down payment that you were willing to risk, but wanted to limit your risks so that you could always walk away only loosing what you had already put into the boat, would you consider a corporation? S type?
Just a thought.

I think this is what the business world calls "moral hazard".

Anyway, no lender would lend to a business/corporation who lacked the equity or insurance coverage to reimburse the lender in the case of total loss.

The simplest answer to your question is "buy insurance".

[edit] on second read... if your down-payment is big enough and the boat is in good enough condition, you could likely find someone to take the boat off your hands by assuming the payments, or working with the lender to resell the boat. No corporation required.

[SURV69]

Let me guess what you're asking . . .

You want to buy a boat and you have cash.

You also want the ability to walk away from the boat(if you tire of it?), at some later date with no further responsibility, but with an acceptance of losing all the money you've put into the boat.

If this is right, then I'm thinking that you'd have to put enough down on the boat, as such, that if you needed to short-sale it(get rid of it quickly), the sale price would, at the least cover any existing debt on the boat.

Right?

[Doodles]

Originally Posted by David_Old_Jersey

Not entirely sure what liability you are seeking to walk away from - the balance of a loan? If that the case then will require an idiot for a lender! (to not seek at least a personal guarantee from you - as the source of the repayment, therefore negating the effect of limited liability via the corporation).

There is your answer. I've advised and worked with a lot of individual businesses (C-corp, S-Corp, LLC, LLP) and nobody is going to loan you money on a boat without a personal guarantee. The corporate shield is only good for other liabilities.

[SURV69]

I don't get this.

You don't indicate the boat being any part of a business venture and you don't indicate any sort of a business use, then almost out of the blue you mention S-Corp.

Is this a business venture?

[hellosailor]

Buy proper liability insurance for the boat.

Setting up what is called a "sham corporation" which has and does no legal business except creating a liability shield, can often be thrown out by the courts. Leaving you with no protection at all.

And the cost of proper insurance may actually be less than the cost of running a sham corporation.

[twistedtree]

Ok, I'll take a crack at what I think you are asking. I think you are saying that you are interested in buying a boat, willing to put down a significant down payment, and want to finance the balance. But, you are worried about the world going to s&*t again, and want to have a way to walk away from the boat if that should become necessary. You realize that you would lose your down payment, but you don't want to also be stuck with the loan. In other words, you want to leave the boat and loan to the bank to sort out since the boat will presumably be collateral for the loan. Is that what you are saying?

The answer then is that yes, technically an LLC or other corp structure would own the boat and the loan liability, and you could declare bankruptcy of the business to bail out of the boat. But, and it's a big but, I expect the lenders have figured this out, and will require you to co-sign or otherwise guarantee the loan, not just the shell company or LLC. They want both collateral AND someone who can make the payments. If the loan is given to the LLC, then all they would have would be the collateral.

Then again, maybe Crazy Lending will start up again and you will be able to incorporate and finance a Bologna Sandwich just like in the good old days. In that case, your boat LLC will look like AAA-rated investment.