A non US citizen with Delaware registration flys what flag?

[boatman61]

Face it.. its a scam that will not be closed as it not only serves to aid foreigners in evasion it also aids US citizens..
I know several Yanks who have taken the Delaware LLC route for their $700K> boats bought in Europe.. from Florida.. California..
The Rico loophole.. like the Channel Isles.

[DotDun]

Originally Posted by valhalla360

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.

The case we're discussing is a non-commercial vessel. The law is different for commercial vessels.

[Dockhead]

Originally Posted by valhalla360

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.

You just dreamed all that up. It's not like that. A board has certain legal responsibilities, whether it's Exxon or Dreamboat Holding Corp. Exxon is obviously much more complex, so the board has a lot more work to do, but the legal responsibility and role is exactly the same.

You keep talking about "dummy boards", but I tell you - there is no such thing. The responsibilities and role of boards of directors are set by law and by the company's articles, and the law is the same whether it's Exxon or DHC.

The whole POINT of corporations is to separate the ultimate owners from what happens on the street -- creating hoops to jump through to get to them (especially, limiting liability of the shareholders for the debts and liabilities of the company -- the original purpose of corporations). Probably half of the corporations in the world are set up solely to hold one asset or some shares in another company, with no income, and no commercial activity. Their boards do very little, often as little as the one man board of DHC, but the legal responsibility and the legal role is all the same, and that is just fine.

Privacy also has nothing to do with it -- in many jurisdictions, the legal shareholders are a matter of public record -- takes 10 seconds to look it up in a public date base, and in many countries you are obligated to legally declare the ultimate beneficiaries. Both are true in the UK -- if you know my radio call sign, you can get the owner of my boat, and from there you get right to me and my address -- 15 seconds online. I don't know about Delaware, but I suspect it's the same. Companies are easier to see through for governments, which is one reason why they like them as opposed to natural persons.

There is specifically NO obligation for shareholders of boat-holding corporations to be US citizens. There IS such an obligation with regard to documented vessels who are engaged in fishing or coastwise shipping. If anyone CARED about the citizenship of the ultimate owners of pleasure vessels were, there would be the same requirement as with regard to fishing boats, but the law doesn't care. Setting up small company to hold a boat is specifically allowed by the rules -- it's fine. The government only wants the direct owner to be a US person and for that US person to be nominally controlled by other US persons -- someone to grab, as DotDun said -- the requirements are very clear.

What you don't understand is that the corporations are PERSONS. The government is happy for that person to be a corporation, and it doesn't care who the shareholders are so long as they have "someone to grab". If you don't believe me, as I said -- why don't you call up the Coast Guard Documentation Center and ask them?

[skipmac]

Originally Posted by belizesailor

True, in practice Ive never known it to be an issue. Even in USA waters, my Brazillian friend flys the USA flag, contrary to the alleged rule I posted earlier. He's never been hassled about it and USA officials have hassled him thuroughly when clearing in over...well...being a furiner.

So the practical answer to the OP is to fly the USA flag, but Id still like to see a legal reference for that. [emoji4]

Where was your friend hassled clearing in? Years ago when I was between boats I took a bunch of friends with me on a charter from FL to the Bahamas. Clearing back in to Miami we had three US citizens, one Brazilian, one Belgian, one Danish, one French. Customs officers didn't bat an eye when we all showed up to do the paperwork. Maybe easier since I was the captain of record and US citizen on a US documented boat?

[skipmac]

Originally Posted by Dockhead

Yes, that's what I understand, and what I was writing about.

I wonder if other state registries also require American ownership, like the Coast Guard does? I bet not. I would guess that Delaware is popular just because at one time it was a well known jurisdiction for low tax or tax free holding companies.

I know Florida doesn't care about citizenship in boat registration (or sales tax for that matter). The state just wants their pound of flesh, regardless of where it comes from.

[Zven]

Originally Posted by boatman61

Face it.. its a scam that will not be closed as it not only serves to aid foreigners in evasion it also aids US citizens..
I know several Yanks who have taken the Delaware LLC route for their $700K> boats bought in Europe.. from Florida.. California..
The Rico loophole.. like the Channel Isles.

You should not refer to "evasion" unless you believe a crime has been committed.

What Is the Difference Between Tax Avoidance and Tax Evasion?
No one likes to pay taxes. But taxes are the law. The terms "tax avoidance" and "tax evasion" are often used interchangeably, but they are very different concepts. Basically, tax avoidance is legal, while tax evasion is not.

A business can often legally avoid paying much taxes, and a good advisor can help you with that. But giving false information, or hiding some income that should have been declared, that is evasion, and illegal.

[belizesailor]

Originally Posted by skipmac

Where was your friend hassled clearing in? Years ago when I was between boats I took a bunch of friends with me on a charter from FL to the Bahamas. Clearing back in to Miami we had three US citizens, one Brazilian, one Belgian, one Danish, one French. Customs officers didn't bat an eye when we all showed up to do the paperwork. Maybe easier since I was the captain of record and US citizen on a US documented boat?

Ft. Myers, technically a Port of Entry, but not a common one...maybe the officials were bored.

They were held and hassled for nearly 24 hours, good cop-bad cop routine, accused of running drugs, MIB & dogs aboard, insulted, threatened with arrest and impounding of vessel, the whole bit...in the end much ado about nothing.

Delaware registered vessel, coming from Cuba (though officials later stated this was not an issue). My Brazillian friend with his Chilean wife aboard (who one official insinuated was just his latina whore).

Very unpleasant exprience. Welcome to the USA. Ive also had other foreign friends needlessly hassled on USA entry.

Officials later stated there had been some confusion with another vessel.

In the end they were cleared in with no problems.

Surprisingly, they even cleared in there again. Officials remembered them and it was like old school week...no hassles the second time.

[Cadence]

Originally Posted by belizesailor

No State numbers on the bow of a Federally Documented vessel.

I said Del. reg..

[valhalla360]

Originally Posted by Dockhead

You just dreamed all that up. It's not like that. A board has certain legal responsibilities, whether it's Exxon or Dreamboat Holding Corp. Exxon is obviously much more complex, so the board has a lot more work to do, but the legal responsibility and role is exactly the same.

You keep talking about "dummy boards", but I tell you - there is no such thing. The responsibilities and role of boards of directors are set by law and by the company's articles, and the law is the same whether it's Exxon or DHC.

The whole POINT of corporations is to separate the ultimate owners from what happens on the street -- creating hoops to jump through to get to them (especially, limiting liability of the shareholders for the debts and liabilities of the company -- the original purpose of corporations). Probably half of the corporations in the world are set up solely to hold one asset or some shares in another company, with no income, and no commercial activity. Their boards do very little, often as little as the one man board of DHC, but the legal responsibility and the legal role is all the same, and that is just fine.

Privacy also has nothing to do with it -- in many jurisdictions, the legal shareholders are a matter of public record -- takes 10 seconds to look it up in a public date base, and in many countries you are obligated to legally declare the ultimate beneficiaries. Both are true in the UK -- if you know my radio call sign, you can get the owner of my boat, and from there you get right to me and my address -- 15 seconds online. I don't know about Delaware, but I suspect it's the same. Companies are easier to see through for governments, which is one reason why they like them as opposed to natural persons.

There is specifically NO obligation for shareholders of boat-holding corporations to be US citizens. There IS such an obligation with regard to documented vessels who are engaged in fishing or coastwise shipping. If anyone CARED about the citizenship of the ultimate owners of pleasure vessels were, there would be the same requirement as with regard to fishing boats, but the law doesn't care. Setting up small company to hold a boat is specifically allowed by the rules -- it's fine. The government only wants the direct owner to be a US person and for that US person to be nominally controlled by other US persons -- someone to grab, as DotDun said -- the requirements are very clear.

What you don't understand is that the corporations are PERSONS. The government is happy for that person to be a corporation, and it doesn't care who the shareholders are so long as they have "someone to grab". If you don't believe me, as I said -- why don't you call up the Coast Guard Documentation Center and ask them?

I understand full well what a corporation is and what the purposes are. As I've said multiple times now, it's perfectly legal and legitimate to set up a corporation to buy and own a boat and even to use a board that really has nothing to do with the day to day business of the corporation (aka: dummy board). You can even do it legally as a foreigner. If you are getting state registration and the state doesn't care...works perfectly fine. If the UK doesn't care about your nationality...works perfectly fine. This is because you aren't trying to do something that the state or the UK has prohibited to foreigners.

What a corporation can't do is allow you to do something that would otherwise be illegal and you can't get USCG Documentation as a foreigner (even for pleasure craft not just commercial craft), so if the sole purpose of the corporation is to circumvent the law regarding getting USCG Documentation, it's not a legitimate use of a corporation and if challenged the foreign owner (along with the dummy board) would lose. The only thing that stops this is no one really cares about the law.

[Dockhead]

Originally Posted by valhalla360

. . .
What a corporation can't do is allow you to do something that would otherwise be illegal and you can't get USCG Documentation as a foreigner (even for pleasure craft not just commercial craft), so if the sole purpose of the corporation is to circumvent the law regarding getting USCG Documentation, it's not a legitimate use of a corporation and if challenged the foreign owner (along with the dummy board) would lose. The only thing that stops this is no one really cares about the law.

You're assuming a lot about the purpose of this law, and your assumptions are wrong. The purpose of the law is not to prevent foreigners from owning USCG documented boats. If that were the purpose, then it would say so, like it does with regard to fishing vessels and coast trading vessels.

It is also false to state that a corporation may not do something which would otherwise be illegal if done by a natural person. Where do you get such an idea? If it is specifically permitted for a U.S. company, whatever it is, then it is irrelevant that the shareholders couldn't do it without the company. There are thousands of cases like this. You need a refund of your law school tuition; I'll be glad to represent you The law doesn't work like this at all.

I think what you fundamentally fail to understand is that a company is a PERSON. Companies are legal persons subject to the law in the same way natural persons are. The law on CG documentation wants a US person responsible for the flag. It wants a legal address and legal representative and it wants documents signed by US persons. It wants US persons it can grab if necessary with the legal power to make decisions. That's all it wants, and Zorba the Greek has fulfilled both the letter and the spirit of the law by setting up a company to provide the law with what is demanded. In other words, it is perfectly fine to do it this way.

[hellosailor]

valhalla, you may be intimately familiar with UK law, but the US is not in the UK. We made that break over 200 years ago.

As for governments dealing with corporations, in the US, as in much of the world, we have what is called an "LLC" or Limited Liability Corporation. In some nations, and in some of our own states, famously Nevada, anyone can form an LLC, and the records are sealed. They go under different names in different jurisdictions to reflect that, including "Societe Anon" meaning "anonymous society".

If our own FBI or IRS goes to the Nevada Secretary of State with a warrant, which can only be issued by a judge upon probable cause, and says "Who are the officers, stockholders, and directors of ThatBamdnBoat Corp., LLC?" they will be told "None of your business, you'll have to ask them. Here's their mailing address."

The Swiss are the not the only ones who have offered privacy, and in some ways, they weren't th best at it.

As to shams and sham directors? Our IRS launches enforcement actions every month against sham corporations. The registered agent gets a nastigram in the mail, and then either folks come to an IRS interview, or things get seized. Happens all the time. There are folks who used to incorporate in Delaware (because it is cheap) and then claim their boat didn't owe taxes elsewhere. Yeah. That game ended in the 1970's and the tax men collected lots of money when it did. If the corporation has no other purpose beyond owning a boat and keeping it out of other controls....that's a sham corporation and when someone raises the point, you'll lose the boat by the time you've paid taxes, penalties, and interest.
It's like robbing the local convenience store. Anyone can get away with it. Sometime. Other times, they get busted and sometimes they even get shot.
As for using corporate shells to allow aliens to federally document a vessel in the US? I've seen the sections of the US Code (USC) and they're very clear about it. There's a longer formula about stock allocations and the like, but basically it comes down to "51% or more of the stockholders MUST BE US CITIZENS" and anything else is a sham and a fraud, and will be revoked and prosecuted when and if caught.

Now, I can pay fifty folks at the welfare office $50 each and tell them "Sign here, you are a director and stockholder, I never want to hear from you again" and voila, I've got 50 citizens as stockholders.

And it might work for fifty years. But if one of them squawks....There's goes my boat, here comes my subpeona and bench warrant.

But by all means...use a private LLC to defeat the rules. I know one guy who went 20 years without filing income taxes, either.

[Stu Jackson]

Originally Posted by scottgledhill

1. Dockhead, you fail to see the distinction between a state registered boat and a USCG documented vessel. A documented vessel is ship of a sovereign nation.

2. A registered boat may only operate in local waters and cannot be operated in foreign waters.>>>>>>>>>>>>>>>>

1. Correct. Maybe not so much a distinction, but a classic, i.e., repeated mistake made by many. In the USA: State = registered; Federal = documented. In Canada, for example: provincial = licensed; Federal = registered. Go figgur...

2. WADR, claptrap. I sailed my boat from California to Canada. With CA State registration. Thousands of US boats WITH State REGISTRATIONS LIKE Washington State, NY State, Vermont, etc., sail back and forth to Canada. Canada is a different country that the US, i.e., foreign.

[Zven]

Originally Posted by hellosailor

As for governments dealing with corporations, in the US, as in much of the world, we have what is called an "LLC" or Limited Liability Corporation. In some nations, and in some of our own states, famously Nevada, anyone can form an LLC, and the records are sealed. They go under different names in different jurisdictions to reflect that, including "Societe Anon" meaning "anonymous society".
If our own FBI or IRS goes to the Nevada Secretary of State with a warrant, which can only be issued by a judge upon probable cause, and says "Who are the officers, stockholders, and directors of ThatBamdnBoat Corp., LLC?" they will be told "None of your business, you'll have to ask them. Here's their mailing address."
The Swiss are the not the only ones who have offered privacy, and in some ways, they weren't th best at it.
As to shams and sham directors? Our IRS launches enforcement actions every month against sham corporations. The registered agent gets a nastigram in the mail, and then either folks come to an IRS interview, or things get seized. Happens all the time. There are folks who used to incorporate in Delaware (because it is cheap) and then claim their boat didn't owe taxes elsewhere. Yeah. That game ended in the 1970's and the tax men collected lots of money when it did. If the corporation has no other purpose beyond owning a boat and keeping it out of other controls....that's a sham corporation and when someone raises the point, you'll lose the boat by the time you've paid taxes, penalties, and interest.
It's like robbing the local convenience store. Anyone can get away with it. Sometime. Other times, they get busted and sometimes they even get shot.
As for using corporate shells to allow aliens to federally document a vessel in the US? I've seen the sections of the US Code (USC) and they're very clear about it. There's a longer formula about stock allocations and the like, but basically it comes down to "51% or more of the stockholders MUST BE US CITIZENS" and anything else is a sham and a fraud, and will be revoked and prosecuted when and if caught.
Now, I can pay fifty folks at the welfare office $50 each and tell them "Sign here, you are a director and stockholder, I never want to hear from you again" and voila, I've got 50 citizens as stockholders.
And it might work for fifty years. But if one of them squawks....There's goes my boat, here comes my subpeona and bench warrant.
But by all means...use a private LLC to defeat the rules. I know one guy who went 20 years without filing income taxes, either.

With all respect, you seem to be mixing up things here. Where to even start?
First, there is no such thing as a sham corporation. A corporation is a legal person and has a number of rights and responsibilities. It is like a baby... it is alive, whether or not you like its parents and circumstances.
Also, it is not a problem in principle that a corporation has only a single purpose, like owning a vessel, but of course all applicable laws must be obeyed.
Next, your reference to LLC seems out of place. That is only one category of company. It may or may not be a suitable type for yacht ownership... A lawyer would know.
In some cases, owning a vessel through a corporation can be beneficial with regards to taxation, finance, registration procedures etc. Legally.
Regarding your "incorporate in Delaware (because it is cheap) and then claim their boat didn't owe taxes", that sounds nonsensical. More details about the alleged crime would be required to comment.
As to "one guy who went 20 years without filing income taxes", that would depend on his circumstances. Depending on the jurisdiction and other details, filing may or may not be required. Either way, it seems irrelevant to this discussion.
About "pay fifty folks at the welfare office $50 each and tell them "Sign here, you are a director and stockholder", I believe that works differently for the two roles you describe.... For directors, regular contact is required for conducting the business of the corporation, e.g, signing off annual documents. So it would be more like $50 annually, and then it's probably fine in principle. Many directors are only marginally involved with the corporations they take responsibility for.
Stockholders are another matter. Stockholders are owners. If you wish to give away your boat, or fractional ownership in it, to the guys down at the welfare office, that is your choice and, again, OK in principle. Of course such transactions would need recording and reporting following applicable laws.
"Société Anonyme" or S.A. is Spanish and just means "corporation". There are historical reasons for the wording.
Today, very few corporations are really anonymous. But even if they are, of course that does not give them a right to break any laws... no more than closing the curtains gives anyone a right to be abusive.

[DotDun]

Originally Posted by hellosailor

......
But by all means...use a private LLC to defeat the rules. I know one guy who went 20 years without filing income taxes, either.

Defeat what rules?????


Here are the rules:

https://www.dco.uscg.mil/Our-Organiz...r-FAQ/#anchor2

HOW DO I ESTABLISH U.S. CITIZENSHIP?
Citizenship is established by completion of form CG-1258. In addition to individuals, corporations, partnerships, and other entities capable of holding legal title may be deemed citizens for documentation purposes. Corporations must be registered in a state or the U.S; the chief executive officer and chairman of the board of directors must be U.S. citizens, and no more than a minority of the number of directors necessary to constitute a quorum may be non-citizens. In addition, at least 75% of the stock must be vested in U.S. citizens for a coastwise or fisheries endorsement.

As Dockhead has stated - The last sentence does not apply to recreational only documentation.

3 Directors, 2 are US Citizens and 1 a non-US Citizen. It is stating that management of the vessel must be controlled by a US citizen. That's a partnership or corporation. Register the partnership or corporation in a US State of your choice and you have a "entity capable of holding legal title".

Why is this so hard to understand???

[Cadence]

Originally Posted by DotDun

Defeat what rules?????


Here are the rules:

https://www.dco.uscg.mil/Our-Organiz...r-FAQ/#anchor2




As Dockhead has stated - The last sentence does not apply to recreational only documentation.

3 Directors, 2 are US Citizens and 1 a non-US Citizen. It is stating that management of the vessel must be controlled by a US citizen. That's a partnership or corporation. Register the partnership or corporation in a US State of your choice and you have a "entity capable of holding legal title".

Why is this so hard to understand???

LLC is a limited liability corporation. It keeps your personal assets safe. It does require officers. I think the advantage in Del. is a tax consideration. Unfortunately I've never had an 80' yacht.