As a maritime attorney, I frequently get asked by a purchaser of a recreational vessel whether they should take ownership of their new boat in their personal name or form an LLC to own the boat. Here are the pros and cons of LLC ownership of the vessel.
Ownership of the New Vessel by an LLC – Pros
- LLCs Can Add an Extra Layer of Liability Protection
Boating can be a dangerous activity. Every year people drown, are injured in propeller strikes, are overcome by exhaust, or are injured in other ways. Lawsuits and damages for these types of injuries and/ or deaths could easily exceed the coverage provided by your marine liability policy and expose your personal assets. An LLC can add an extra layer of liability protection should someone on your vessel be injured or should your vessel cause injury to someone else. IF the LLC is the owner of the vessel than creditors of the LLC can only reach what assets are in the LLC or may be limited to a charging order against the LLC’s income, protecting your personal assts.
On the other hand, an extra layer of liability protection can also be obtained by way of purchasing an excess policy that would drop done for coverage once your marine liability policy is exhausted. If you go this route, be sure that the excess policy will be excess to the marine policy.
In California, every LLC, wherever organized, is deemed to be “doing business” in California, if the LLC owns an asset based in California with a value of $50,000 or more. Thus, even your Delaware LLLC must pay the annual minimum franchise tax of $800 to the California franchise Tax Board every year. So, when it comes to weighing the costs of an extra layer of liability protection balance this $800 annual cost versus the cost of the excess policy.