A non US citizen with Delaware registration flys what flag?

[Dockhead]

Originally Posted by valhalla360

The service is likely knowingly gaming the system and it works as long as no one challenges it (kind of like if you speed and don't get pulled over it doesn't mean you can legally speed).

A corporate owned USCG Documented boat must be majority controlled by US Citizens.

He can own the corporation which owns the boat but he can't control the corporation...assuming he is the sole owner/operator of the boat and corporate board doesn't play any real role in the control and use of the boat other than to obtain USCG Documentation, he may get away with it but he obtained the documents illegitimately as they clearly are not in a controlling position.

Of course, it's likely a low priority for the law to chase this kind of thing down as it's a victimless crime.

Well, it's not a crime at all -- corporate CONTROL is the issue, and certainly not USE of the boat.

You can hire a law firm or an accounting firm for a couple of hundred bucks a month to provide a CEO/Chairman of a one-man company -- a common way of running a holding company. You are the sole shareholder, and the company gives you a letter of authorization to use the boat.

This is totally legitimate.

My own boat is Part 1 registered as a British Ship. She is owned by a UK corporation which took about 15 minutes to set up online. I am the sole shareholder and the sole director. I have to file a tax return every year (which is full of zeros since the company has no bank account and no income) and an "annual return" which certifies who the ultimate beneficiary owners are, who are the current shareholders, and who are the current directors and managers. It's all done online. As the sole director of the company (which anyone can check in the official registry online), I have the power to sign an authorization letter allowing myself to sail the boat anywhere I like. I am neither UK citizen nor resident.

Totally legitimate, transparent, above-board, and -- common. The nice people at the ship registry at the MCA gave me advice and helped me set it up, and no official in any of the 15 or so countries I've sailed in has ever batted an eye, including in the UK.

Unlike the case in the U.S., in the UK there is no requirement that the shareholders or directors or managers of a UK company which own a UK ship be UK citizens or residents. So the only difference is that in the US, you just need a hired US director/CEO to exert legal control over the company, according to the instructions of the shareholders, of course.

This is not a loophole -- the rules are designed precisely to ensure that it is US persons who are signing contracts and who are responsible for the decisions and acts of the company -- US persons who are subject to US courts. If you hire a person with that responsibility, then you have fulfilled both the letter and the spirit of the law.

[belizesailor]

Originally Posted by valhalla360

The service is likely knowingly gaming the system and it works as long as no one challenges it (kind of like if you speed and don't get pulled over it doesn't mean you can legally speed).

A corporate owned USCG Documented boat must be majority controlled by US Citizens.

He can own the corporation which owns the boat but he can't control the corporation...assuming he is the sole owner/operator of the boat and corporate board doesn't play any real role in the control and use of the boat other than to obtain USCG Documentation, he may get away with it but he obtained the documents illegitimately as they clearly are not in a controlling position.

Of course, it's likely a low priority for the law to chase this kind of thing down as it's a victimless crime.

Not refering to a Federally Documented vessel, but State Registered.

[belizesailor]

Originally Posted by Dockhead

This is obviously false. Do you mean MAY not? Is there a law which forbids a person with a state registered boat from leaving the country with it? I doubt it, but I will be glad to be educated if I'm wrong.





Both of these propositions are false. A documented vessel is NOT an "extension of sovereignty." Vessels have nationality, like people do -- that does not make either of them anything sovereign.


And it is not true that "only US citizens and US corporations with a majority of US owners may document a vessel" -- a documented vessel, so long as it is a recreational vessel, may be owned even 100% by foreign citizens, provided they own it through a U.S. corporation which is controlled by U.S. officers and directors. Ownership is important only if the vessel has a coastwise or fisheries endorsement, and in that case, a majority is not enough -- it's 75%.

This was mentioned earlier in the thread and you can read about it on the USCG Documentation Center website.

I think the foreign control laws have been modified in recent years, as I recall they used to be more restrictive.

Also documentation services still recommend foreign owners go with Delaware registration...maybe exercising the above provisions are more problematic than they appear.

Surely there is a member on here who works for a documentation service?

[valhalla360]

Originally Posted by belizesailor

Not refering to a Federally Documented vessel, but State Registered.

My bad, state registered doesn't have the same citizen ownership requirements so no issue with who "controls" the corporation/boat when getting state registration.

[valhalla360]

Originally Posted by Dockhead

Well, it's not a crime at all -- corporate CONTROL is the issue, and certainly not USE of the boat.
Falsifying govt documents is a crime so if the board can't legitimately claim to "control" the corporation wouldn't qualify to get USCG Documentation for the boat (it's just incredibly unlikely anyone would pursue action against the owner and/or corporation).

You can hire a law firm or an accounting firm for a couple of hundred bucks a month to provide a CEO/Chairman of a one-man company -- a common way of running a holding company. You are the sole shareholder, and the company gives you a letter of authorization to use the boat.

This is totally legitimate.

My own boat is Part 1 registered as a British Ship. She is owned by a UK corporation which took about 15 minutes to set up online. I am the sole shareholder and the sole director. I have to file a tax return every year (which is full of zeros since the company has no bank account and no income) and an "annual return" which certifies who the ultimate beneficiary owners are, who are the current shareholders, and who are the current directors and managers. It's all done online. As the sole director of the company (which anyone can check in the official registry online), I have the power to sign an authorization letter allowing myself to sail the boat anywhere I like. I am neither UK citizen nor resident.

Totally legitimate, transparent, above-board, and -- common. The nice people at the ship registry at the MCA gave me advice and helped me set it up, and no official in any of the 15 or so countries I've sailed in has ever batted an eye, including in the UK.

Unlike the case in the U.S., in the UK there is no requirement that the shareholders or directors or managers of a UK company which own a UK ship be UK citizens or residents. So the only difference is that in the US, you just need a hired US director/CEO to exert legal control over the company, according to the instructions of the shareholders, of course.

This is not a loophole -- the rules are designed precisely to ensure that it is US persons who are signing contracts and who are responsible for the decisions and acts of the company -- US persons who are subject to US courts. If you hire a person with that responsibility, then you have fulfilled both the letter and the spirit of the law.

The UK example is largely irrelevant as they have no citizenship requirement, so setting up a dummy board is legal and legitimate as it has no impact on the ability to obtain UK documentation. But everything in this discussion hinges on the US citizenship requirement for USCG Documentation.

The last paragraph is where the idea of a dummy board fails in this specific case. The US Citizens on the board do not have control of decisions or acts of the company (assuming it's really an individual owning a pleasure craft for personal use). The foreign citizen/owner still has full control of the boat and the corporation. Ie: the board would never sell the boat, refurbish it or move it to a new home port or take any other action that could be defined as "control" without the owner directing it. For all practical purposes, the foreign owner still exercises "control" over both the corporation and the boat.

[Barbaria]

Originally Posted by Dockhead

So what? What other nationality can the boat have, other than that of the COUNTRY in which it is registered?

"Most Swedish yachts aren't registered in any way, anywhere. They wear Swedish ensigns, and are obligated to do so, even if the owners are American.
Ships have nationality just like people do. Just because you don't have a passport, doesn't mean you're not American.

Quote from Swedish Government Offices Legal databases:
"Vessels are considered Swedish and are entitled to fly Swedish flag if more than half owned by Swedish citizens or Swedish legal persons".

https://translate.google.no/translat...s.1&edit-text=

[DotDun]

Originally Posted by valhalla360

The UK example is largely irrelevant as they have no citizenship requirement, so setting up a dummy board is legal and legitimate as it has no impact on the ability to obtain UK documentation. But everything in this discussion hinges on the US citizenship requirement for USCG Documentation.

The last paragraph is where the idea of a dummy board fails in this specific case. The US Citizens on the board do not have control of decisions or acts of the company (assuming it's really an individual owning a pleasure craft for personal use). The foreign citizen/owner still has full control of the boat and the corporation. Ie: the board would never sell the boat, refurbish it or move it to a new home port or take any other action that could be defined as "control" without the owner directing it. For all practical purposes, the foreign owner still exercises "control" over both the corporation and the boat.

The US Citizen on the board, or the ‘Manager’ can certainly give the owner permission to use the boat as he sees fit. The key is the Manager will be the entity that will be served any legal documents, ie, subpoena, etc. No loophole, I’m sure the architects of the law knew people would use the law in such manner.

[Dockhead]

Originally Posted by valhalla360

The UK example is largely irrelevant as they have no citizenship requirement, so setting up a dummy board is legal and legitimate as it has no impact on the ability to obtain UK documentation. But everything in this discussion hinges on the US citizenship requirement for USCG Documentation.

The last paragraph is where the idea of a dummy board fails in this specific case. The US Citizens on the board do not have control of decisions or acts of the company (assuming it's really an individual owning a pleasure craft for personal use). The foreign citizen/owner still has full control of the boat and the corporation. Ie: the board would never sell the boat, refurbish it or move it to a new home port or take any other action that could be defined as "control" without the owner directing it. For all practical purposes, the foreign owner still exercises "control" over both the corporation and the boat.

Probably you have to be a lawyer for this to make any sense, so I'm sympathetic to your confusion, but anyway, there is no such things as a "dummy board", and your idea of "control" is not applicable here.

The board of directors of Exxon are also people who are hired, paid a salary to be board members, and take orders from the shareholders (according to certain procedures, of course, but ultimately the owners call the shots).

It's the same thing here -- the lawyer you hire to be your sole board member gets a couple hundred bucks for doing that, and just like an Exxon board member, he ultimately has to do what the shareholders tell him.

The purpose of requiring board members (and executives) to be U.S. people is so that the people legally responsible for the acts of the company can be hauled into a U.S. court. The policy behind this, I think, is to give the state some direct means of control over what the company does in case any laws are violated -- it's a question of perceived responsibility of the flag state.

Just to name one example -- the shareholders of the company can't sell the boat without an act of an officer of the company and probably a board decision (depends on how the articles are written). If there is a lien on the boat and the lienholder objects to an attempt to sell the boat to a foreign buyer, he can go to court and force the director to not sign any such documents. This is even better than if the boat was owned directly, because the hired director will be less willing to get into trouble to do something which the owner wants. Same thing with, say, an illegal charter agreement -- the hired director is responsible.

Does that make more sense now? There is nothing shady about owning a boat this way. It is not "gaming the system." "Control" specifically means the legal control exercised by directors and executives. It is specifically permitted for a foreigner to own a boat through a U.S. company with a hired director having legal control over the company, and get Coast Guard documentation.

[Dockhead]

Originally Posted by DotDun

The US Citizen on the board, or the ‘Manager’ can certainly give the owner permission to use the boat as he sees fit. The key is the Manager will be the entity that will be served any legal documents, ie, subpoena, etc. No loophole, I’m sure the architects of the law knew people would use the law in such manner.

Exactly

And that in fact is how all corporations work.

[valhalla360]

Originally Posted by DotDun

The US Citizen on the board, or the ‘Manager’ can certainly give the owner permission to use the boat as he sees fit. The key is the Manager will be the entity that will be served any legal documents, ie, subpoena, etc. No loophole, I’m sure the architects of the law knew people would use the law in such manner.

If it were a larger corporation with a real board that controls the corporation and the boat was just one asset among larger holdings, you could make this argument and it would be tough to disprove. (ie: if Richard Branson asked the US Corporation of Virgin Atlantic buy a boat for his use, it would likely hold up as the board really is running the US Corporation and has control)

When you have an LLC with the sole purpose of getting around the citizenship requirement and the board has no purpose or control other than to provide said citizenship...piercing the corporate veil is a bit easier.

I seriously doubt the architects of the law gave any consideration to this loophole as large scale personal cruising (particularly for foreigners coming to the USA) was simply not a thing 75-100yrs ago.

Again, I don't expect a rash of arrests any time soon but the technicality is it violates the law.

[boatman61]

As far as I am aware the folks I know have no desire whatsoever to gain citizenship which if I may add is not possible using an LLC.. nor to cruise the USA.. 95% of the boats would never get across..
It is merely to get a flag of convenience for their boat to evade taxes and other hassles they would be liable for in their own countries..
Delaware is the Panama etc of the pleasure boating world.
Some countries such as I believe Turkey are taking steps to close the door on this profitable revenue source that Delaware enjoys..
They want the revenue their citizens are ducking paying.

[Dockhead]

Originally Posted by valhalla360

If it were a larger corporation with a real board that controls the corporation and the boat was just one asset among larger holdings, you could make this argument and it would be tough to disprove. (ie: if Richard Branson asked the US Corporation of Virgin Atlantic buy a boat for his use, it would likely hold up as the board really is running the US Corporation and has control)

When you have an LLC with the sole purpose of getting around the citizenship requirement and the board has no purpose or control other than to provide said citizenship...piercing the corporate veil is a bit easier.

I seriously doubt the architects of the law gave any consideration to this loophole as large scale personal cruising (particularly for foreigners coming to the USA) was simply not a thing 75-100yrs ago.

Again, I don't expect a rash of arrests any time soon but the technicality is it violates the law.

ALL corporations are set up to separate ownership from management and liability -- that is their entire purpose. Single asset corporations are no doubt the MAJORITY of cases of companies owning vessels.

"Control" is specifically defined as the number of board members (enough to prevent a quorum from being formed by non-citizens), and any chairman or CEO. "Control" is a specific legal concept here. There is no "getting around" anything here, and nothing to "hold up". Neither the law nor the policy behind it cares about who uses the boat -- it cares that the owner is a US person subject to US laws and jurisdiction, and that this US person (in this case, a US corporation, which is a person) is being legally managed by US persons subject to US laws and jurisdiction (going one step further than the British do). The whole spirit and purpose of all of these laws is entirely fulfilled by a one-asset corporation (what we call a holding company or SPV -- an absolutely common and legitimate vehicle) with a hired board, and no one will ever bat an eye about it -- DotDun got it exactly right.

If Zorba the Greek buys a Hinckley and sets up a U.S. corporation to own it, and hires a lawyer to be the sole director and CEO, and gets stopped in Boston Harbor wearing the stars and stripes, and presents all these documents with all the right signatures and stamps, he will be complimented on having set it up so nicely and presenting such a nice set of documents, I guarantee you (I get this myself, all the time). Provided his own Greek passport and U.S. visa are in order, of course. Bureaucrats and LEO's love boats owned by companies -- to them it's a much clearer situation, with a real professional responsible with a real office, whom they can get hold of if there is some legal issue.

If you don't believe me, ask your lawyer. Or call up the Coast Guard and ask them.

Originally Posted by valhalla360

. . . the technicality is it violates the law.

Absolutely not! Neither technically, nor in spirit!

[DotDun]

Originally Posted by valhalla360

If it were a larger corporation with a real board that controls the corporation and the boat was just one asset among larger holdings, you could make this argument and it would be tough to disprove. (ie: if Richard Branson asked the US Corporation of Virgin Atlantic buy a boat for his use, it would likely hold up as the board really is running the US Corporation and has control)

When you have an LLC with the sole purpose of getting around the citizenship requirement and the board has no purpose or control other than to provide said citizenship...piercing the corporate veil is a bit easier.

I seriously doubt the architects of the law gave any consideration to this loophole as large scale personal cruising (particularly for foreigners coming to the USA) was simply not a thing 75-100yrs ago.

Again, I don't expect a rash of arrests any time soon but the technicality is it violates the law.

That is not ‘getting around’ the law, that is how the requirement is met. All the law cares about is having a US citizen for contact as a ‘throat to choke’. Why would the law care who owns the boat?

Ownership of private companies is not required to be recorded anywhere, only the ‘Registered Agent’ and ‘Manager(s)’. Why would it be different with boat ownership??

[valhalla360]

Originally Posted by Dockhead

Probably you have to be a lawyer for this to make any sense, so I'm sympathetic to your confusion, but anyway, there is no such things as a "dummy board", and your idea of "control" is not applicable here.

The board of directors of Exxon are also people who are hired, paid a salary to be board members, and take orders from the shareholders (according to certain procedures, of course, but ultimately the owners call the shots).

It's the same thing here -- the lawyer you hire to be your sole board member gets a couple hundred bucks for doing that, and just like an Exxon board member, he ultimately has to do what the shareholders tell him.

The purpose of requiring board members (and executives) to be U.S. people is so that the people legally responsible for the acts of the company can be hauled into a U.S. court. The policy behind this, I think, is to give the state some direct means of control over what the company does in case any laws are violated -- it's a question of perceived responsibility of the flag state.

Just to name one example -- the shareholders of the company can't sell the boat without an act of an officer of the company and probably a board decision (depends on how the articles are written). If there is a lien on the boat and the lienholder objects to an attempt to sell the boat to a foreign buyer, he can go to court and force the director to not sign any such documents. This is even better than if the boat was owned directly, because the hired director will be less willing to get into trouble to do something which the owner wants. Same thing with, say, an illegal charter agreement -- the hired director is responsible.

Does that make more sense now? There is nothing shady about owning a boat this way. It is not "gaming the system." "Control" specifically means the legal control exercised by directors and executives. It is specifically permitted for a foreigner to own a boat through a U.S. company with a hired director having legal control over the company, and get Coast Guard documentation.

The issue with your example is the Exxon board does exercise control of the corporation. The board can implement programs, approve new initiatives, hire & fire, all the stuff it takes to control a large corporation without any direct shareholder approval. They may face repercussions from the shareholders if they take poor actions but the board does have control.

With our scenario, the board has no control. They aren't going to take any action related to the boat without the immediate and direct instruction from the owner. They may pull the owner up short if he proposes something illegal that would drag them down but that's not the same as having control. (really no different than if any other corporate employee sees something illegal and takes action before they get drug down)

If it wasn't for the USCG Documentation citizenship requirement, it wouldn't matter and nothing shady about having a dummy board. If you wanted to maintain privacy, you could set up a dummy board, so people would have to jump thru some hoops to find out who the real owner is....nothing wrong or illegal about that.

But a corporation can't be used solely for the purpose of avoiding the legal requirements.

[valhalla360]

Originally Posted by DotDun

That is not ‘getting around’ the law, that is how the requirement is met. All the law cares about is having a US citizen for contact as a ‘throat to choke’. Why would the law care who owns the boat?

Ownership of private companies is not required to be recorded anywhere, only the ‘Registered Agent’ and ‘Manager(s)’. Why would it be different with boat ownership??

People are mixing up foreign ownership of a boat thru a corporation vs the USCG Documentation requirement to be owned by a citizen.

It's perfectly legal and fine to own the boat using a corporation with a dummy board. That's not the issue under discussion.

My understanding of the law is it goes back to commercial shipping and the US wanting to secure that with native ownership. If it's easily circumvented with a dummy board, the law has no purpose in the first place.

What "choke hold" do they gain by having a dummy board? They can just as easily go after the foreign owner and in reality if it's just a dummy board at a corporation factory that clearly was unaware of any illegal activity, they aren't likely to go after the dummy board members...so not much of a "choke hold".

I don't question it works but like many things working and being legitimate are two different things. I seriously doubt if you CG pulls you over and checks your paperwork, they have the legal understanding to determine if it's legitimate and likely won't want to challenge what looks legitimate on the surface.