Over the past three decades, Delaware has become the state of choice when it comes to corporate or LLC ownership of mobile assets. The latter includes antique and cutting-edge automobiles, private jets, and, of course, yachts.
Walk around any marina across the globe and chances are that you’ll see several yachts with a “Delaware” designation. This is because a Delaware corporation provides asset protection, confidentiality, and a degree of tax savings.
Asset Protection
Forming a company is both a common and effective way to protect yourself and your assets. With yachts, there is always a risk of collision, on-board personal injuries, and environmental mishaps like an oil leak. Any one of these could put your personal assets at risk even if you already carry insurance. A corporation, however, offers the protection of limited liability.
When you create a Delaware corporation to own your boat, your liability is limited to that of a corporate stockholder. Delaware law also allows you to avoid personal liability for acts of negligence if such protection is included in the Certificate of Incorporation.
Confidentiality
When a yacht is owned through a corporation, it is easier for the person who owns the ship to maintain their privacy. Delaware law does not require the names of corporation stockholders to be disclosed publicly. You also do not have to have a Delaware bank account, hold meetings in the state, or even visit, which adds an additional layer of confidentiality.
Tax Benefits
Delaware has a highly favorable tax climate for corporations. It does not collect any of the following taxes:
- Sales
- Personal property
- Intangible property
- Stock transfer
Additionally, if you earn income outside the state, Delaware does not assess corporate income tax on it.
Resale Advantages
When you sell a yacht privately, in most instances the new owner is required to pay a new sales tax. When the boat is a corporate asset, you can either sell it as such or sell the entire corporation. With the latter option, you simply transfer shares of stock to the new owner, a transaction that involves no taxes in Delaware. The vessel also does not have to be re-documented with either the US Coast Guard or the State of Delaware.
Potential Disadvantages
While Delaware presents huge benefits to corporations, it does impose additional obligations and costs if you choose to incorporate and the business is not physically located within the state:
- You will have to pay the costs of registering to do business in your state of residence in addition to the Delaware incorporation fees.
- You are required to name a registered agent with a Delaware street address to receive legal documents on your corporation’s behalf, and may have to hire a company to provide this service.
- All Delaware corporations must pay a franchise tax every year, the amount of which is based on the value of their shares.
- Delaware has annual reporting requirements that must be complied with.
Incorporating in Delaware has its advantages, but before taking that first step, the drawbacks also need to be considered. For assistance in this regard, contact the team at ASAP Marine Documentation, a part of Howard S. Reeder, Inc. today. We will help you weigh all the options and make the right decision for your circumstances.
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