The laws that are applicable depend upon whether or not the boat or yacht was custom built from a design by a naval architect or newly built of a standard design or whether the vessel is an assembly line manufactured vessel called "production boats."
In the case of custom built boats, one of the key issues that must be decided at the outset is where the vessel will be built. Although the good workmanship and the low cost of foreign yards may appeal to many purchasers of new vessels, the very fact that the vessel was foreign built can have great consequences with regard to future licensing, employment and documentation of the vessel.
Documentation under federal law is administered by the Department of Transportation for the United States Coast Guard. To be eligible for documentation, a vessel must measure at least 5 net tons and be owned by a citizen of the United States or by an association, partnership or corporation that is essentially controlled by United States citizens. In order to be documented as a commercial vessel, the applicant must show that the vessel was built in the United States. Recreational vessels, however, are exempt from that requirement. Once a recreational vessel license has been issued, the boat may be operated only for pleasure use and may only be under the command of a United States citizen. If a recreational vessel is used for commercial purposes or is placed under the command of a non-United States citizen, the documentation becomes invalid. The penalties for the violation of the documentation statutes can be quite severe, including forfeiture of the vessel to the United States in some cases. The Maritime Administration now issues waivers of the US-build requirement in certain cases for some foreign commercial passenger vessels.