Vessel Registration and Documentation

Fewer than one percent of vessels in the U.S. are documented with the Coast Guard with most pleasure boats opting for state registration. Among the statutes dealing with registration are the Federal Motorboat Act of 1910 which placed on the federal government the responsibility to regulate recreational boating in the U.S.; the Federal Numbering Act of 1918 which instituted a numbering system for all undocumented vessels; the Federal Boating Act of 1958 which shifted the responsibility of numbering undocumented vessels from the federal government to the states; and the Federal Boating Safety Act of 1971, mostly dealing with recreational boating, which entrusted states and territories with insuring minimum registration requirements set by the federal government. Among those requirements are navigation rules, vessel numbering, safety equipment, lights and day shapes, pollution rules and distress assistance.

Pursuant to the legislation cited above, states are required to assign numbers to all vessels with propulsion machinery that are used in waters under federal jurisdiction. Exceptions to that requirement are documented vessels (not in every case) and foreign vessels temporarily in the U.S. The way numbers are assigned to vessels by states is either through a title or registration system. A registration system basically requires the payment of an annual fee in order to get a number and sticker. This type of registration system does not protect good faith purchasers from the acquisition of stolen or lien burdened vessels because no chain of title is provided. The only purpose of the registration is to establish who holds the current registration of the vessel. The titling of a boat follows the same principles as the titling of an automobile with the title showing seller and purchaser as well as mortgagees and other lenders who are still owed money. When the boat is resold, the title is signed over to a the new owner who gets his own title upon registration. The chain of title is thus established.

Documentation of vessels is the responsibility of the Coast Guard. Documentation was originally required only for large commercial vessels but is gradually being used for smaller and pleasure boats for the added security it affords lenders. The National Vessel Documentation center is located in Falling Waters, West Virginia. Unlike simple registration or titling by states, the documentation procedure requires numerous forms and documents. They include the application for initial issue of certificate of documentation; the builder certificate and first transfer of title; a bill of sale on appropriate federal form; and declaration of citizenship.

When the owner of a vessel is an individual all he needs to show as proof of citizenship is his passport or naturalization certificate. A corporation, however, may present more complex issues. A corporation is deemed a citizen if (a) it is incorporated under the laws of the United States or of a state, territory, district or possession; (b) its president, or other chief executive officer and its chairman of the board are United States citizens; (c)no more of its directors than a minority of the number necessary to constitute a quorum are non-citizens; and (d) the controlling interest in the corporation is owned by United States citizens or, if the vessel is documented for coastwise trade, at least 75 percent of the interest in the corporation is owned by United States citizens.

It should be noted that the regulations only find control and ownership in a corporation if (I) title to at least a majority of the stock is vested in United States citizens free of any trust or fiduciary obligation in favor of any person who is not a United States citizen; (ii) at least the majority of the voting power is vested in U.S. citizens; (iii) there is no contract or understanding through which it is arranged that the majority of the voting power may be exercised directly or indirectly on behalf of any person who is not a U.S. citizen; and (iv) there are no other means whatsoever by which control of the corporation is conferred upon or permitted to be exercised by any person who is not a U.S. citizen.

One of the most cumbersome requirements of the documentation procedure is the builder's certification and first transfer of title or the establishment of a chain of title, on federal bills of sale forms, to be signed by each and every successive owner. That requirement applies to initial documentation only, whether or not there has been a state chain of title. While this requirement does not present a problem for new vessels, it can be a major challenge for old ships whose builder is no longer in business and which have had many owners. In some cases a waiver may be available but, most of the time it is necessary to rely on the services of documentation companies who track down all the successive owners.


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