LEGAL CONSIDERATIONS
Running a boat building business involves
legal issues such as contracts, insurance, manufacturers certificate of
origin.
Disclaimer:
I am not an attorney. This is not legal advice. Only a lawyer can give you legal advice.
All of the following is based on my own experience and education. It is very
general in nature. Many laws concerning running a business vary from state to
state. It is your responsibility to find out what the laws are in your state or
city. Any errors or omissions on my part do not relieve you from your obligation to
operate your business legally. Where possible I have put links to web sites that contain
information about the subject. However, you should consult an attorney for specific
details of the laws applicable where your business is located. What is said here applies
only to the USA. If you are in another country you need to talk to someone who knows
the laws in your country.
A link to an explanation of how all this legal stuff is
created.
Legal Stuff Page 2 -
Statutes and Regulations - How does it all happen?
Contracts:
Most beginning boat builders don't even want to think
about contracts. But they need to in order to protect themselves. If you take an order to
build a boat you need to get the customer to sign a contract for the order before you ever
begin to buy materials or begin construction. The reason is simple. With a
gentleman's agreement, that is, a hand shake, the customer can back out of
the agreement at any time, leaving you with all of the costs. You need to get it in writing. Many
builders have been left with a boat that the customer decided they didn't want or couldn't
pay for. If this happens you would have to find someone to buy the boat to recover your
costs. With a contract, your case will be very strong if you decide to take the customer
to court to recover your costs. This does not have to be a formal contract. It can all be
on the order form. But both parties need to discuss and know what they are agreeing to.
Things to put in the contract.
What boat is to be built and who will build it. Where it will be built.
Are there to be any changes from the published description of the boat? What are those
changes? Did the customer pay a deposit??
The agreed price. How it will be paid? Up front? In installments? Half now, half
at delivery? Establish the details so the customer can't put off paying you.
The agreed delivery date.
The agreed place of delivery.
Who will pay for transportation if the customer requests the boat to be delivered to a
location other than the factory.
Note requirements if the customer wants to make changes. How the price will be
negotiated for the changes.
Cost overages: How will any cost overages be paid and by whom.
Any other negotiable items.
The days of a gentleman's agreement are unfortunately behind us. That ship has sailed.
You have to protect yourself and your business.
Liability
If you built it, and something is wrong with it, that
injures or kills someone, you may be liable. What does that mean? It means you may have to
pay damages to the injured party. You will more than likely get sued. This is based
on the principle of strict liability which, simply put, says that the builder is liable
for any defects in his product. The best way to protect yourself is through
liability insurance and to make sure you build to known accepted industry standards.
You must build to the standards found in Federal regulations. That's the law. But, you
have an option whether or not to build to ABYC
standards or some other accepted standard such as ISO or ABS, or Lloyds to name a
few. In the USA most courts use ABYC
as the de facto standard. That means that most manufacturers use
ABYC standards and accept them as the
benchmark of boat construction. However, if you don't build to standard and something bad
happens, you will probably be found liable. Building to a known standard is good
protection against liability. It is not 100% protection but helps your argument that the
problem was completely unforeseen. If you normally build to the standards and for
some reason don't follow the standard on a particular boat or item on a boat, you should
document your reasons why. Keep a file on each boat sold. If you change
something, note it in the file. Put in why did you built it that way, how you built it,
and why it is a better way to build. This is for your own protection.
Insurance:
Insurance is expensive and everybody knows it.
Still if you build a product and sell it to the public it is cheaper to have insurance
than to have to pay a large settlement. So you should have liability insurance. If you
decide to have employees, you will also need to have liability insurance to cover on the
job accidents.
However, liability insurance for small boat
builders is often difficult to find. An option may be to join an
industry association that offers insurance to their members, such as
ABYC http://abycinc.org/
NMMA
http://www.nmma.org/ , or
ABBRA
https://www.abbra.org/ By doing this you get the advantage of
lower group rates.
Environmental considerations:
The EPA has regulations that apply
to boat manufacturing. Such things as dust collection, reduction of styrene emissions, and use of products containing chemicals
that pollute the environment are enumerated in the regulation. Some of these apply to
everybody. Some do not apply to businesses under a certain size. There is
information about this on the
EPA web site, and on
NMMA's web site.
To incorporate or not.
A company owned by a single person is known as
a sole proprietorship. You as the owner are responsible and liable for everything. You can
be held personally responsible for debts, liabilities and anything that happens to your
customers because of your product. But for many small businesses this is the way to go.
You have complete control over the business and all of the assets and profits are yours to
do with as you please.
If you take a partner (two or more owners) the same rules apply except everything is
divided up equally, or according to how much each partner has invested in the company.
If you have a partner you need an agreement in writing, defining each partner's
share of the business and their responsibilities. You also need to state who has the
authority to do what. You most likely don't want your partners selling their part of the
business without your permission. But if it's not in writing they can. So spell it
out. Especially spell out who has fiscal responsibility. Who handles the cash. Who
has access to bank accounts, pays the bills, can purchase materials, etc. You
probably want to require that all partners must agree to any expense, beyond routine
things such as ordering materials and supplies. Most disagreements in partnerships
are over money and how the company is managed, so get it down in writing. Get an
attorney to sit down with you and your partner or partners and put it all down on
paper.
When it's done, everyone has to sign the partnership agreement and have it
witnessed. It would be good to have it notarized. This will protect you from
someone who could sell out and disappear with the cash. You need to do this even if
the company is family owned! It is actually much easier on everyone if they know
what their responsibilities are.
Should you incorporate? Incorporation has advantages. There is what is known as a
limited liability corporation that gives you some of the benefits of a full corporation
but without the complexity. Incorporation creates an entity which is your company.
The company then takes on all the liabilities and assets. Everything belongs to the
company. If a liability situation occurs the company can be sued, but they have to prove
you did it willfully and negligently to go after you personally. This means that your
personal belongings such as your house can no longer be taken away because you are no longer
personally liable for the company's debts and liabilities. Incorporation has some
tax advantages too.
The best thing to do is take a class at your local community college on this subject.
Basic business course usually cover the advantages and disadvantages of each type of
business. Also, you should discuss this with an attorney before proceeding. You
don't necessarily need an attorney to incorporate. You can find all the forms and
procedures on the internet or in books at your local book store or library, but an
attorney can explain any questions you may have and ease the process.
Resources: Look on the
Business page for resources to
help you learn about all of these things.
Manufacturer Certificate of Origin.
Most state require a Manufacturer's
Certificate of Origin to register and title a boat. A majority of the states have passed
laws requiring boats to have a Title, just as cars have a Title. To get a Title a
consumer has to show a legitimate bill of sale and Manufacturer's Certification of
Origin. In some states this is called a Manufacturer's Statement of Origin.
This is not a Federal or Coast Guard requirement. However, the Coast Guard has
proposed a regulation for this, but currently it is still just a proposal. The best thing
you can do is contact your State Boating
Law Administrator and ask for a copy of the form used in your state. This form should
be acceptable in any state because they are all patterned on a model put together by the
National Association of State Boating Law
Administrators. This form may be available from the Department of Motor Vehicles
or other state agencies that register boats. The manufacturer should give the
consumer this form as well as a bill of sale with each boat. Without this form your
customers will not be able to register their boat.
If you are building a boat over five net tons, and it is going to be documented
by the Coast Guard, rather than registered with a state, then there is a Coast Guard
Form. CG Form 1261 Builder Certification and First Transfer of Title.
This is also called a Manufacturers Certificate of Origin or a Master Builders
Certificate. Documentation services (do a web
search) will get this form for you, or you can contact the
Coast Guard National Vessel Documentation Center or call 1-800-799-8362 or
download the form at
https://www.dco.uscg.mil/Portals/9/DCO%20Documents/NVDC/CG1261%20Builder's_Certification.pdf.
Model Year:
This has been much discussed by boat manufacturers,
dealers, and engine manufacturers as well as by the Coast Guard and the States.
As far as I am aware the only law requiring a model year designation is the Hull Identification Number
regulations. Most boat manufacturers give their boats a model year and make changes to
their model lines every year. However, small businesses generally don't make many
changes from year to year and some never change their boats except to make improvements
that are necessary. Most often these changes are not obvious and are in the actual
structure rather than the appearance of the boat. So these builders often don't want to
declare a model year. There are even some large boat builders who do this. Grand Banks
rarely makes changes to their boats and a 1990 looks exactly like a 2000. They have in the
past objected to putting a model year on their boats. So why use model year?
First is your customer. Customers like to know when a boat is new, or not. They
like to know what model year it is. Model Year is not terribly important if
you never change the boat, but if you make changes then it is.
Second, most states require a model year on the registration. But, this model year is
taken right from the Hull Identification Number.
Recently engine manufacturers have been discussing not using a model year. Mainly this
is so boat dealers can put a engine on a boat without worrying about whether the engine is
the same model year as the boat, as long as it is new. However, the serial number of the
engine would still be able to reveal the year of manufacture so there would be no
confusion over parts numbers. A new model would be manufactured when a major change
was made to the engine. This may work for engines but it is not as practical for boats.
The biggest problem with model year is a sales and inventory problem. If you have a
boat in inventory from last year, and it has never been sold, is it a "New" boat
or is it last years model? The HIN law says that you can't change the HIN once the
boat enters interstate commerce. This means when it has been sold, or shipped to a
dealer. But as long as it is still at the factory the builder is free to put
whatever model year in the HIN that they wish. However, this can run into a problem with
state registration if the model year is more than one year removed from the date of
manufacture. So be cautious if you do this. After the boat leaves the factory, it
becomes illegal to change the model year. A dealer, manufacturer or anyone else CAN
NOT change a Hull Identification Number to update the model year no matter how long the
boat sits on his lot. The Federal regulation requires that permission be obtained
from the Coast Guard to make any alteration to the HIN. Also, a dealer or seller
cannot misrepresent an older model as a current model year boat because most states would
consider this consumer fraud. They can however state that it is a "New"
boat as long as this is true.
When does a model year begin or end? As of
2009 the US Coast Guard began enforcing the model year regulation as it is
written:
Model year means the period beginning August 1 of
any year and ending on July 31 of the following year. Each model year is designated by the
year in which it ends. Title 33 Code Of Federal Regulations Chapter I Part
181.3.
So Model year begins
on August 1st and ends on July 31. Example: Model Year 2012 would
begin August 1, 2011, and end July 31, 2012.
Prior to this the US Coast Guard had been
allowing manufacturers to determine the model year. So older boats may
have a different model year span than new boats. But new boats
must use the definition as stated above. For the rules, go to the page on HINs.
Splashing, or copying someone else's boat.
Most people believe they have the sole rights to the use of their own creations or ideas. This is true to some
extent. However, it is also known that many people get started in the boat building
business by simply copying someone else's design. In the USA this is called
"splashing", in Europe it is often referred to as
"flopping". This is a very common practice.
Sometimes this is perfectly legal but most times it is not. It depends on the laws
in your state, copyright and trademark laws, and a Federal Law called the Vessel Hull
Design Protection Act. It also depends on the nature of the design that is copied. I
will try to keep this as simple as possible because the issue can become very complex.
Sometimes only the courts can sort it out. As I said in my disclaimer, I am not an
attorney, I am an engineer. So I will try to keep it in engineering terms. But if
you have questions about this I suggest you contact an attorney that specializes in
copyright, trademark and patent laws.
Basically, you cannot splash or copy someone else's design of an existing boat
without their permission, or unless it is in the public domain. Splashing means
making a mold from someone else's boat. Some people think that if the boat design is
changed a little bit, then copying or splashing is legal. This is not true.
You can still be sued by the designer and lose. This also includes copying someone else's
design from plans or drawings.
Legitimate use of someone else's design. What is public domain? When is
someone else's design in the public domain? Public domain means anyone can
legally use it for private or commercial use. One way a design becomes public domain is if
the creator of the design says it is. They do this by publishing and encouraging
others to use their design. There are literally thousands of wooden boat designs that fall
into this category and many sail and powerboat designs are in the public domain.
However, the act of publishing alone does not make it public domain. It has to
include the intent by the creator to make it available for anyone to use.
Some designs have been around so long that no one can legitimately claim ownership,
such as the dory, or jon boat. No one could legitimately say the idea of a dory or
jon boat is theirs because these types of boats have been constructed for several hundred
years by many boat builders . The design of a simple vee bottom outboard boat is so basic
that no one can claim ownership. Vee bottom planing hull boats have been around since the
early 1900's. Canoes are essentially in the public domain because canoes have been
made since prehistoric times. Catamarans have been built since prehistoric times in the
South Pacific. Basic simple hull designs are almost always public domain.
On the other hand, the unique Boston Whaler design of a cathedral type hull is owned by
Boston Whaler. The hull shape is not necessarily new but they way they put it all
together is unique. A few companies have tried to copy it but Boston
Whaler has defended their ownership of this design in court and won. So if you see a
nice boat and think it would be a good idea just to take a mold off the hull you may be
breaking the law. This is not a criminal offense, that is, you won't be jailed or
fined. But it is civil offence, and you can be sued and have to pay the
owner. This means paying them the proceeds you got from selling all of the
boats you made with this design, and destroying the molds, plans, templates,
or any other patterns used to make this boat.
None of the above prohibits you from improving on a design if it is a genuine
improvement. If you see a boat and think it would be better if it had less dead rise aft
or a bigger transom, or steps on the planing surface, you can make those types of
changes. Many basic hull shapes have been around for a hundred years and are being
constantly "improved". A good example is the first Bertram, Moppie.
Deep vee boats had been around for a long time, but Bertram carried the vee
at the same angle of deadrise all the way forward to the stem and added
lifting strakes at intervals on the hull. Up until then no one else had done
this.
There is nothing illegal about this type of improvement of an existing
commonly used design. But, beware, some designers have taken others to court for building a boat so similar to theirs that it
could be reasonably mistaken for their design. This is the look and feel
issue. If it looks like and feels like their design, it probably is.
There have been cases where people have defended themselves against such law suits by
showing the history of a hull design. They show how small changes have been made to it
over many, many years and how their variation fits in and is different from that of the
person suing them. They also show that the design of the person suing them is just
another variation on a design that has existed for many years. Sometimes this works,
sometimes it doesn't.
Coming up with a design independently, that is, by your own creative work,
without having access to or having seen the other boat that it resembles, does not
necessarily violate someone else's right to the design. But you may have to prove
that you developed the design on your own. This can only be decided by the courts.
Illegal use of someone else's design: This means simply copying someone else's
design and selling it as your own. It doesn't matter how it was copied, whether by using
plans or splashing a mold. You must have permission from the "owner" of the
design to copy it. This is seldom given without some consideration in return, that is,
paying them for the right to use it.
Vessel Hull Design Protection Act. A US Federal law was passed in 1998
and amended in 2008, as an attempt
to stop all the splashing and copying that occurs in the boat building
business. It states that a designer or builder can register their hull design with
the Trademark and Patent Office. Once it has been registered, no one can copy the
design. This is not the same as a patent or a copyright but in effect makes the
designer or builder the "owner" of the design. To get this protection, a
designer or builder must register their design. Approval is not automatic. The Trademark
and Patent Office will do a search of the other registered hull designs and patents to
make sure this design hasn't already been registered or patented. If it already exists as
a registered or patented design then it will not be given registration. This does provide
the creator of a design with some protection. In 2008 amendments were added to
strengthen the law. The Act . The Act Overview and
analysis. This law is also enforceable in the courts in other countries
through treaties the USA has with those countries under general patent and
copyright infringement agreements. However this could be very
expensive to prosecute. That still doesn't mean you can copy someone
else's design just because they are in another country. It is still
stealing.
Here are some papers on this subject.
It is full of legal jargon and references to laws and court cases but it
is clear enough for anyone to understand the point of it all.
Outrigger
Hull Design Protection
Florida IP Trends: Vessel Hull Design Protection Act - What The Hull?
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